UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CATALYST LIGHTING GROUP, INC.
----------------------------
(NAME OF SMALL BUSINESS
ISSUER IN ITS CHARTER)
DELAWARE 6770 84-1588927
------------------------ ----------------------------- ------------------
(STATE OF INCORPORATION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF ORGANIZATION) OR JURISDICTION CLASSIFICATION IDENTIFICATION NO.)
CODE NUMBER)
6777 CAMP BOWIE BOULEVARD
SUITE 233
FORT WORTH, TX 76116
(800) 433-7753
(ADDRESS AND TELEPHONE NUMBER OF
PRINCIPAL EXECUTIVE OFFICES)
DENNIS H. DEPENBUSCH
CHIEF EXECUTIVE OFFICER
CATALYST LIGHTING GROUP, INC.
6777 CAMP BOWIE BOULEVARD
SUITE 233
FORT WORTH, TX 76116
(800) 433-7753
(NAME, ADDRESS AND TELEPHONE
NUMBER OF AGENT FOR SERVICE)
COPIES TO:
DAVID FELDMAN, ESQ.
FELDMAN WEINSTEIN, LLP
420 LEXINGTON AVENUE
NEW YORK, NY 10170
PHONE: (212) 869-7000
FAX: (212) 997-4242
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE
AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT AND DATE OF THE
PROSPECTUS.
IF THIS FORM IS FILED TO REGISTER ADDITIONAL
SECURITIES FOR AN OFFERING PURSUANT TO 462(B)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX
AND LIST THE SECURITIES ACT REGISTRATION
STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING. [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED
PURSUANT TO RULE 462(C) UNDER THE SECURITIES
ACT, CHECK THE FOLLOWING BOX AND LIST THE
SECURITIES ACT REGISTRATION STATEMENT NUMBER
OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(D)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES
ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION
STATEMENT FOR THE SAME OFFERING. [ ]
IF DELIVERY OF THE PROSPECTUS IS
EXPECTED TO BE MADE PURSUANT
TO RULE 434, PLEASE CHECK THE
FOLLOWING BOX. [ ]
================================================================================
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION
STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY
TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES
THAT IT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT
OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT
TO SAID SECTION 8(A), MAY DETERMINE.
CALCULATION OF REGISTRATION FEE
Title of each Class Amount Proposed Maximum Proposed Maximum Amount of
of Securities Being To be Offering Price Aggregate Registration
Registered Registered Per Security Offering Amount Fee
Common Stock, par
value $.01 per share 1,200,000 $ 2.50 $ 3,000,000 $ 242.70
Common Stock issuable
upon exercise of
shares underlying
Placement Agent
Warrants 120,000 $3.125 $ 375,000 $ 30.34
--------- ----------- -----------
TOTAL 1,320,000 $ 3,375,000 $ 273.04
========= =========== ===========
CATALYST LIGHTING GROUP, INC.
(A Delaware Corporation)
1,200,000 shares of common stock
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion. Preliminary Prospectus dated September 29, 2003.
We were formed under the name Wentworth III, Inc. in March, 2001 as a blank
check company to pursue a business combination. We offered our common stock to
the public pursuant to Rule 419 promulgated under the Securities Act of 1933, as
amended, and closed our offering in November, 2002, raising proceeds of $50,000
from the sale of 50,000 shares of our common stock. We had no operating business
and our activities since inception had been related to formation, completing our
initial public offering and finding suitable merger or acquisition candidates.
As of February 12, 2003, we entered into a Securities Exchange Agreement with
Whitco Company, L.L.P., a Texas limited liability partnership which
manufactures, markets and distributes outdoor lighting poles. On August 27,
2003, we acquired Whitco Company, LP (successor in interest as a result of
conversion of Whitco Company, L.L.P. to a limited partnership) through an
exchange of all of Whitco's partnership units, and options to purchase
partnership units, for 2,991,368 shares of common stock, and options to purchase
808,632 shares of common stock. Whitco became our wholly-owned subsidiary. On
September 3, 2003, we changed our name to Catalyst Lighting Group, Inc.
We are offering shares of our common stock through Keating Securities, LLC on a
best efforts basis. We will pay commissions to Keating on sales of common stock,
as set forth herein in more detail. Subscription monies will be held in an
escrow account with [ ] pending acceptance by us. We may choose to hold the
first closing of the offering after subscriptions and funds of $1,000,000 have
been received and accepted. Thereafter, additional shares up to the maximum
amount of $3,000,000 may continue to be sold at subsequent closings.
This offering will terminate June 30, 2004, unless we decide in our sole
discretion to extend the offering for an additional ninety (90) days.
No public market currently exists for our common stock. The offering price may
not reflect the market price of our common stock after this offering. Our shares
are not listed on any securities exchange.
These securities have not been approved or disapproved by the Securities and
Exchange Commission, nor has the commission passed upon the accuracy or adequacy
of the prospectus. Any representation to the contrary is a criminal offense.
The information in this prospectus is subject to amendment and completion.
This offering involves a high degree of risk. Please see "Risk Factors"
beginning on page 3.
Offering Information
Per share Total
------------ ----------------
Offering price $ 2.50 $ 3,000,000.00
Placement commissions $ .25 $ 300,000.00
Estimated offering expenses $ .0625 $ 75,000.00
Net proceeds to us $ 2.1875 $ 2,625,000.00
KEATING SECURITIES, LLC
Prospectus dated September __, 2003.
TABLE OF CONTENTS
Page
----
Prospectus Summary......................................................... 1
Summary Financial Information.............................................. 1
Risk Factors............................................................... 3
Dilution................................................................... 8
Plan of Distribution ...................................................... 10
Use of Proceeds............................................................ 12
Business................................................................... 13
Management's Discussion and Analysis....................................... 26
Management................................................................. 44
Statement as to Indemnification............................................ 48
Market for our Common Stock................................................ 48
Certain Transactions....................................................... 50
Principal Stockholders..................................................... 51
Description of Securities.................................................. 53
Legal Matters.............................................................. 58
Financial Statements....................................................... F-1
You should rely only on the information contained in this document or to which
we have referred you herein. We have not authorized any one to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
as of the date of this document.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus and
does not contain all of the information you should consider before investing in
our common stock. While we have highlighted what we believe are the key aspects
of our business and this offering, you should read the entire prospectus
carefully, especially the risks of investing in our common stock discussed under
"Risk Factors" beginning on page 3.
Catalyst Lighting Group, Inc.
We are a Delaware corporation, organized on March 7, 2001 as Wentworth III, Inc.
On August 27, 2003, we acquired Whitco Company, LP, a marketer and distributor
of steel and aluminum outdoor lighting poles and related accessories. On
September 3, 2003, we changed our name to Catalyst Lighting Group, Inc. Whitco
is owned and operated as our wholly-owned subsidiary. The managing member of
Whitco is Whitco Management, LLC, also wholly-owned by us. We currently have no
other subsidiaries or operating businesses other than the business of Whitco.
We maintain our office at 6777 Camp Bowie Boulevard, Suite 233, Fort Worth,
Texas 76116. Our phone number is 800-433-7753 and the fax number is
817-926-5003. Whitco maintains a website at www.whitcopoles.com and we maintain
a website at www.catalystlighting.com. The information contained on that website
is not deemed to be a part of this prospectus.
The Offering
Securities offered 1,200,000 shares of our common stock, $0.01
par value.
Offering price $2.50 per share.
Gross Offering proceeds $3,000,000
Expiration date The offering will terminate on June 30, 2004
unless extended for an additional 90 day period.
Common stock outstanding
prior to the offering 3,391,368 shares
Common stock to be
outstanding after the offering
(assuming all shares are sold
in offering) 4,591,368 shares
There is no public market for the common stock and we can give you no assurance
that one will develop after the offering. Our founders, officers, directors,
current stockholders and affiliates are able to purchase shares in this
offering.
SUMMARY FINANCIAL INFORMATION
The table below contains certain summary historical financial data of Catalyst
Lighting Group. The historical financial data for the period ended December 31,
2002 has been derived from our audited financial statements which are contained
in this prospectus. The information herein should be read in conjunction with
those financial statements and notes, and the other financial information
included in this prospectus.
From
For the 6 Months Ended For the Year Ended March 7, 2001 to
June 30, 2003 December 31, 2001 December 31, 2001
------------- ------------------ -----------------
Statement of Income Data:
Net Sales $ -0- $ -0- $ -0-
Net Income(Loss) $ (6,772) $ (18,525) $ (1,322)
Net Gain (Loss) Per Share $ (.03) $ (.09) $ (.01)
Shares Outstanding 200,000 200,000 150,000
As of June As of December
30, 2003 31, 2002
Balance Sheet Data
Working Capital (Deficit) $ (43,682) $ (36,910)
Total Assets $ 45,376 $ 47,125
Long-Term Debt $ -- $ 0
Total Liabilities $ 44,058 $ 39,035
Total Shareholders' Equity $ 1,318 $ 8,090
Whitco Company, LP
The table below contains certain summary historical and pro forma financial data
of Whitco. Net income (loss) for purposes of this summary equals the historical
net income (loss) adjusted for pro forma taxes, as if Whitco were a
C-corporation for state and federal tax purposes. The historical and pro forma
financial data for the year ended September 30, 2002 have been derived from our
audited financial statements which are contained in this prospectus. The
information should be read in conjunction with those financial statements and
notes, and other financial information included in this prospectus.
Nine months Three months Twelve months Twelve months Nine Months
ended ended ended ended ended
September 30, December 31, December 31, December 31 June 30,
2002 2002 2002 2001 2003 2002
Statement of Income Data:
Sales $ 10,243,036 $ 3,282,406 $ 13,525,442 $ 11,784,438 $ 10,644,295 $ 9,600,503
Net Income
(Loss)- Proforma $ 89,672 $ (43,156) $ 46,516 $ 198,531 $ (299,340) $ 131,309
Net Income (Loss)
Per Unit $ 107.26 $ (51.62) $ 55.64 $ 165,440 $ (335.21) $ 109.42
Partnership Units
Outstanding 836 836 836 1,200 893 1200
As of As of June 30, 2003
September 30, 2002
Balance Sheet Data
Working Capital (Deficit) ($ 146,978) $ (846,980)
Total Assets $ 6,275,218 $ 7,089,491
Long-Term Debt $ 1,838,571 $ 1,210,341
Total Liabilities $ 5,137,720 $ 6,045,583
Total Partners' Equity $ 1,137,498 $ 1,043,908
Whitco and Wentworth III
Pro-forma Combined, Condensed Information
The pro forma information in the table below combines the balance sheet of
Whitco and Wentworth III as of June 30, 2003 as if the acquisition was effective
on June 30, 2003. The table also combines the statements of operations of Whitco
and Wentworth III for 9 months ended June 30, 2003 and the 12 months ended
December 31, 2002 as if the acquisition was effective at the beginning of each
period presented. This information is not necessarily indicative of future
operations or the actual results that would have occurred had the merger been at
the beginning of each period presented. This pro forma information should be
read in conjunction with the historical and pro forma financial statements
included elsewhere in this document.
For the 9 months For the 12 months
Ended Ended
June 30, 2003 December 31, 2002
----------------------------------------- ------------- -----------------
Statement of Income Data
----------------------------------------- ------------ ------------
Sales $ 10,644,295 $ 13,525,442
----------------------------------------- ------------ ------------
Loss before pro forma taxes $ (899,262) $ (475,685)
----------------------------------------- ------------ ------------
Net Loss after pro forma taxes $ (906,162) $ (484,915)
----------------------------------------- ------------ ------------
Net Loss (after pro forma taxes) $ (.27) $ (.14)
per share
----------------------------------------- ------------ ------------
Balance Sheet Data
----------------------------------------- ------------
Working capital (deficit) $ (940,662)
----------------------------------------- ------------
Total assets $ 7,134,867
----------------------------------------- ------------
Long-term debt $ 1,210,341
----------------------------------------- ------------
Total liabilities $ 6,139,641
----------------------------------------- ------------
Stockholders' equity $ 995,226
----------------------------------------- ------------
RISK FACTORS
An investment in our securities is highly speculative and subject to numerous
and substantial risks. These risks include those set forth below and elsewhere
in this prospectus. Readers are encouraged to review these risks carefully
before making any investment decision.
THERE COULD BE CONFLICTS OF INTEREST AMONG MANAGEMENT WHICH MAY BE ADVERSE TO
YOUR INTERESTS.
Conflicts of interest create the risk that management may have an incentive to
act adversely to the interests of other investors. A conflict of interest may
arise between our management's personal pecuniary interest and its fiduciary
duty to our stockholders. Our officers and directors currently own approximately
53% of the outstanding common stock and would continue to own approximately 35%,
assuming all of the shares offered hereunder are sold. Although management would
no longer retain voting control of the Company, management will continue to have
day to day operating control of the Company and a large voting block of the
common stock. Such influence over our company may not necessarily be consistent
with the interests of our other stockholders.
IF WE RAISE ADDITIONAL FUNDS THROUGH THE ISSUANCE OF OUR EQUITY SECURITIES, OR
DETERMINE TO REGISTER ANY COMMON STOCK GRANTED IN ANY BUSINESS COMBINATION, YOUR
PERCENTAGE OWNERSHIP WILL BE REDUCED, YOU WILL EXPERIENCE DILUTION WHICH COULD
SUBSTANTIALLY DIMINISH THE VALUE OF YOUR STOCK AND SUCH ISSUANCE MAY CONVEY
RIGHTS, PREFERENCES OR PRIVILEGES SENIOR TO YOUR RIGHTS WHICH COULD
SUBSTANTIALLY DIMINISH YOUR RIGHTS AND THE VALUE OF YOUR STOCK.
One of the factors which generally affects the market price of publicly traded
equity securities is the number of shares outstanding in relationship to assets,
net worth, earnings or anticipated earnings. If a public market develops for our
shares, or if we determine to register for sale to the public those shares of
common stock granted in any future financing or business combination, a material
amount of dilution can be expected to cause the market price of our common stock
to decline. Furthermore, the public perception of future dilution can have the
same effect even if actual dilution does not occur.
In order for us to obtain additional capital or complete a business combination,
we may find it necessary to issue securities conveying rights senior to those of
the holders of common stock. Those rights may include voting rights, liquidation
preferences and conversion rights. To the extent we convey senior rights, the
value of our common stock can be expected to decline.
IF WE INCUR MORE INDEBTEDNESS, WE MAY BECOME TOO HIGHLY LEVERAGED AND WOULD BE
IN RISK OF DEFAULT.
There is no contractual or regulatory limit to the amount of debt we can take
on, although we intend to follow a conservative debt policy. If our policy were
to change or be eliminated due to unforeseen circumstances, we could become more
highly leveraged, which could adversely affect our ability to meet our
obligations and we would then be in risk of default, which could have a material
adverse effect on our financial condition and business prospects.
IN THE ABSENCE OF A PUBLIC MARKET FOR THE COMMON STOCK, YOU MAY NOT BE ABLE TO
SELL YOUR SECURITIES OR ACHIEVE LIQUIDITY IN YOUR INVESTMENT.
Currently, there is no public market for our securities and we cannot assure you
that a public market will ever develop. You will likely not be able to sell your
securities if a regular trading market for our securities does not develop and
we cannot predict the extent, if any, to which investor interest will lead to
the development of a viable trading market in our shares. Further, if a trading
market for our securities were to develop, we can give no assurance such a
market could be sustained, nor that the common stock could be resold at their
original offering price or at any other price. Any market for our securities
which may develop will very likely be a limited one. In any event, if our
securities trade at a low price, many brokerage firms may choose not to engage
in market making activities or effect transactions. Accordingly, purchasers of
our securities may have difficulties in reselling them and many banks may not
grant loans using our securities as collateral. This absence of a public market
could effectively eliminate your ability to sell your shares.
WE LACK BUSINESS DIVERSIFICATION AS WE OPERATE IN ONE BUSINESS IN ONE INDUSTRY,
WHICH MAKES US SUBJECT TO ALL THE RISKS AND UNCERTAINTIES OF THAT INDUSTRY.
As Whitco is currently our sole operating business, the prospects for our
success are entirely dependent upon the future performance of a single business.
Unlike other entities with resources to consummate several business
combinations, or entities operating in multiple industries, we do not expect to
have the resources to diversify our operations or benefit from the possible
spreading of risks or offsetting of losses.
THERE IS INTENSE COMPETITION IN WHITCO'S INDUSTRY WHICH MAY ADVERSELY AFFECT OUR
FINANCIAL CONDITION AND YOUR INVESTMENT IN OUR COMMON STOCK.
There are numerous competitors in the fields in which Whitco is currently
involved and in which it intends to enter, many of which have developed product
lines and established customer followings. In many cases, Whitco's competitors
have far greater financial and other resources. We also expect competition to
increase in the future. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which could
harm our net revenue and results of operations. Whitco competes or will
potentially compete with a variety of companies, many of which have operated for
a longer period of time and have significantly greater financial, technical,
marketing and other resources. Some of these competitors have established
relationships with leading manufacturers, suppliers, wholesalers, distributors
and sales representatives. These competitors include national wholesalers and
national and regional distributors, some of which Whitco already has existing
relationships with. Further, we face a significant competitive challenge from
alliances entered into between and among Whitco's competitors, as well as from
competitors created through industry consolidation. The combined resources of
these partnerships or consolidated entities could pose a significant competitive
challenge and could impede Whitco in, or prevent it from, establishing
relationships which would be most beneficial.
WHITCO IS DEPENDENT ON A FEW MANUFACTURERS TO MAKE THE TUBES REQUIRED FOR ITS
POLE BUSINESS.
Whitco's primary business is selling lighting poles in a variety of market
segments. Although Whitco owns the raw material, it relies on fabricators to
turn the steel tubes into the poles it sells. Currently, Whitco uses two primary
manufacturers and has a written agreement with one of them, making us
substantially dependent on these two companies. Although we believe we can
secure other fabricators, we expect that the deterioration or cessation of
either relationship would have a material adverse effect, at least temporarily,
until the new relationships are satisfactorily in place.
WE MAY BE SUBJECT TO LAWSUITS AS A RESULT OF THE MANUFACTURE, DESIGN AND
INSTALLATION OF OUR LIGHTING POLES, WHICH COULD BE COSTLY AND DIVERT NEEDED
RESOURCES AWAY FROM OPERATIONS.
Whitco is currently not involved in any legal proceedings. Although Whitco does
not manufacture or install the lighting poles it designs and sells, We still
face the risk of lawsuits from property owners, federal and state governments
and any injured parties from accidents alleged to occur as a result of the
manufacture, design or installation of the lighting poles and fixtures. Any
lawsuit, even if without merit, could divert needed time, money and other
resources from our business. Although we currently have property, general
liability and product liability insurance in amounts we believe to be adequate,
we can give no assurance such insurance will remain available at a reasonable
price, if at all, or that any insurance policy would offer coverage sufficient
to meet any liability arising as a result of a claim. The obligation to pay any
substantial liability claim could render Whitco insolvent and could force it to
curtail or suspend operations, which would have a material adverse effect on
your investment. Additionally, failure to implement and maintain a quality
control program with respect to the manufacture and installation of poles could
increase the risk of liability for any injury that may occur from one of
Whitco's poles.
EFFORTS TO PROTECT INTELLECTUAL PROPERTY OR THE ALLEGED MISUSE OF THE
INTELLECTUAL PROPERTY OF OTHERS MAY CAUSE US TO BECOME INVOLVED IN COSTLY AND
LENGTHY REGULATORY PROCESS OR LITIGATION WHICH COULD DIVERT NEEDED RESOURCES
AWAY FROM OPERATIONS.
Our success depends, in part, on our ability to obtain and preserve patent,
trademark and other intellectual property rights, including with respect to the
software created in connection with Whitco's business, services, products and
the pole designs they create. The process of seeking trademark and patent
protection and defending claims is time consuming and expensive and no
assurances can be given that (i) patents or trademarks will actually be issued,
(ii) new patents will be sufficient in scope to provide meaningful protection or
any commercial advantage or (iii) others will not independently develop similar
products or design around any patents we may obtain. If we fail to protect
intellectual property from infringement, other companies may offer competitive
products. Additionally, we may have to defend ourselves against claims we
infringe the intellectual property rights of others. Protection of our
intellectual property, and defense of our own products and services, could
result in costly and lengthy litigation, diverting resources which would
otherwise be dedicated to managing the business.
WHITCO IS NOT IN COMPLIANCE WITH CERTAIN FINANCIAL COVENANTS RELATING TO ITS
REVOLVING CREDIT AGREEMENT.
Under the current $2,000,000 credit facility with PNC Bank, Whitco can borrow
the lesser of $2,000,000 or the aggregate of 80% of eligible accounts receivable
and 50% of eligible inventory, as those terms are defined in the agreement with
PNC. Whitco currently does not comply with the following covenants (1) Whitco
has a tangible net worth (as defined in the PNC agreement) of less than $300,000
and (2) the ratio of (Total Debt - Subordinated Debt) to (Book Net Worth +
Subordinated Net Worth - Intangible Assets) is greater than 8 to 1. PNC Bank has
indicated it will not seek to call the promissory note. As of August 31, 2003,
Whitco owed PNC approximately $1,965,351. However, no assurances can be given
that PNC will not decide to declare Whitco in default and seek to enforce its
rights pursuant to the agreement. In such event, Whitco may have to pay such
debt, be subject to the remedies available to PNC Bank or find alternative
financing to replace the PNC Bank debt, although no assurance can be given that
Whitco will be able to find such alternative financing on terms satisfactory to
Whitco or at all. In the event Whitco is declared in default of its obligation
to PNC Bank, such default may have a material adverse effect on Whitco's
business, financial condition and results of operations.
WE MAY NEED TO EXPEND TIME AND FINANCIAL RESOURCES TO LEARN AND COMPETE IN THOSE
PARTS OF THE INDUSTRY WHICH WE INTEND TO ENTER FOR THE FIRST TIME WHICH COULD
DIVERT NEEDED RESOURCES AWAY FROM OPERATIONS.
Whitco's current business strategy contemplates entering parts of the lighting
industry in which it has not previously competed. Although these segments of the
market are directly related to the current market in which Whitco competes, it
is expected to take time and financial resources to learn the nuances of these
segments, as well as to execute on the business plan and integrate these new
parts of the business into the existing business. Any failure in these new
markets or failure to successfully integrate them into Whitco's existing
business could be expected to have a material adverse effect on our financial
condition and results of operations.
WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE ACQUIRED BUSINESSES, IF ANY, WHICH
COULD RESULT IN A SLOWDOWN IN CASH COLLECTIONS AND ULTIMATELY LEAD TO INCREASES
IN ACCOUNTS RECEIVABLE WRITE-OFFS.
We anticipate that our acquisition strategy will result in a labor-intensive
process to integrate new businesses into our existing business. This can shift
focus away from Whitco's existing business. The successful integration of an
acquired business is also dependent on the size of the acquired business, the
complexity of system conversions, the resolution of disputes regarding multiple
sales representatives in a given geographic area and management's execution of
the integration plan. If we are not successful in integrating acquired
businesses, our results may be adversely affected.
A SLOWDOWN IN THE CONSTRUCTION CYCLE OR ANY REDUCTION IN THE INFRASTRUCTURE
NEEDS OF FEDERAL, STATE AND LOCAL GOVERNMENTS COULD HAVE A MATERIAL ADVERSE
IMPACT ON WHITCO'S BUSINESS AND RESULTS OF OPERATIONS.
Whitco's primary market segments include sports arenas, area lighting, such as
parking lot lighting for shopping malls and apartment complexes, high mast
lighting and roadway lighting. In the private sector, Whitco is dependent on the
construction industry to continue building the arenas and other complexes which
require lighting poles. With regard to roadway lighting, Whitco is dependent on
the needs and financial health of federal, state and local governments. Both the
private and public sectors are highly dependent on general economic conditions.
Accordingly, any reduction in the construction cycle, dip in the economy or
deterioration of the financial health of the federal and state governments could
be expected to have a material adverse effect on the business and financial
condition of Whitco.
WHITCO IS DEPENDENT ON THE PRICE OF STEEL, AND PRICE INCREASES COULD HAVE AN
IMPACT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Whitco makes the majority of its lighting poles out of steel. Our profit margins
are dependent on the price of the raw steel tubes purchased from time to time.
Whitco has no impact on or ability to control or otherwise manage the price it
pays for raw steel. The major steel purchasers could either mark prices down,
which could result in decreased revenues for Whitco as it passes the savings on
to customers, or cause an increase in prices, which could also reduce Whitco's
profit margin if it is determined that customers would rather delay their
purchases than pay higher prices or if customers would purchase poles from a
cheaper source. Although Whitco could buy more steel when prices are low and
less steel when prices are high, such a strategy could lead to either excess
inventory, which would lead to increased fabrication and storage costs, or
insufficient inventory.
WE USED AN ARBITRARY BASIS FOR DETERMINING THE OFFERING PRICE OF THE SHARES.
The offering price of the shares has no relation to the value of our actual or
proposed assets or other objective criteria of value, so you may not be able to
judge whether or not you are likely to achieve a return on your investment. We
determined the offering price of the shares through negotiations with Keating
and such price is not necessarily related to our net worth, assets, earnings,
book value or any other objective financial statement criteria. Among the
factors considered by us were estimates of our business potential, the proceeds
to be raised, the ability to generate a trading market for the common stock, our
relative requirements and the current market conditions in the over-the-counter
market. Accordingly, you should not consider the price offered hereby as any
objective indication of our actual value. You are therefore bearing the risk of
paying more for our shares than our common stock is objectively worth or valued
by the public markets. This could result in an insufficient return, or even a
loss, on your investment.
THE VALUE OF THE COMMON STOCK MAY BE DIMINISHED BY THE ISSUANCE OF PREFERRED
STOCK.
Our Board of Directors is authorized by our certificate of incorporation to
designate and issue up to 10,000,000 shares of one or more series of preferred
stock, which will have such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the common
stock. The preferred stock could be utilized to discourage, delay or prevent a
change in control. Although we have no present intention to issue any shares of
preferred stock, there can be no assurance we will not do so in the future.
THE EXISTENCE OF OUTSTANDING OPTIONS AND WARRANTS MAY HARM OUR ABILITY TO OBTAIN
ADDITIONAL FINANCING AND THEIR EXERCISE WILL RESULT IN DILUTION TO YOUR
INTERESTS.
Upon completion of the offering (assuming the maximum amount is sold), we will
have outstanding (a) 245,000 warrants outstanding to purchase an aggregate of
245,000 shares of common stock and (b) incentive options to purchase 808,632
shares of common stock, with 550,603 of such options currently vested.
Additionally, our option plan reserves an additional 691,368 shares for future
issuance. While these warrants and options are outstanding, our ability to
obtain future financing may be harmed. Upon exercise of these options and
warrants, dilution to your ownership interests will occur as the number of
common shares outstanding increases.
OUR PLACEMENT AGENT DOES NOT HAVE EXTENSIVE EXPERIENCE IN REGISTERED PUBLIC
OFFERINGS.
Although Keating Securities, LLC has engaged in numerous private equity and debt
financing transactions and general corporate financing matters, it has not
previously acted as a placement agent in a completed public offering of
securities. This lack of experience may affect the offering.
OUR BOARD OF DIRECTORS HAS BROAD DISCRETION AS TO THE USE OF THE PROCEEDS.
Of the net proceeds to be received from this offering, approximately 32.5% has
been allocated to working capital and other general corporate purposes and may
be used as management may determine, in its sole discretion without the need for
stockholder approval.
FORWARD-LOOKING STATEMENTS
Statements contained in this prospectus include "forward-looking statements",
which involve known and unknown risks, uncertainties and other factors which
could cause actual financial or operating results, performances or achievements
expressed or implied by such forward-looking statements not to occur or be
realized. These forward-looking statements generally are based on our best
estimates of future results, performances or achievements, based upon current
conditions and assumptions. Forward-looking statements may be identified by the
use of forward-looking terminology such as "may," "can," "could," "project,"
"expect," "believe," "plan," "predict," "estimate," "anticipate," "intend,"
"continue," "potential," "would," "should," "aim," "opportunity" or similar
terms, variations of those terms or the negative of those terms or other
variations of those terms or comparable words or expressions. These risks and
uncertainties include, but are not limited to:
o general economic conditions in both foreign and domestic markets,
o cyclical factors affecting Whitco's industry,
o lack of growth in Whitco's industry,
o our ability to comply with government regulations,
o a failure to manage our business effectively and profitably, and
o our ability to sell both new and existing products and services at
profitable yet competitive prices.
You should carefully consider these risks, uncertainties and other information,
disclosures and discussions which contain cautionary statements identifying
important factors that could cause actual results to differ materially from
those provided in the forward-looking statements. We undertake no obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
DILUTION
The difference between the public offering price per share of common stock and
the net tangible book value per share after this offering constitutes the
dilution to investors in this offering. Net tangible book value per share of
common stock is determined by dividing our net tangible book value, which is
total tangible assets less total liabilities, by the number of shares of pro
forma common stock outstanding as of June 30, 2003.
As of June 30, 2003, Catalyst Lighting Group, Inc.'s net tangible book
value was $1,318 or $0.01 per share of common stock. Net tangible book value
represents the amount of our total assets, less any intangible assets and total
liabilities. Our net tangible book value, after deducting goodwill and
intangibles related to debt, as of June 30, 2003 on an unaudited pro forma
combined basis, taking into account the acquisition of Whitco and issuances of
shares of common stock to Whitco's partners was $(2,051,929), which represents
net liabilities increased by intangible assets of $3,047,155, or approximately
$(0.61) per share, based on 3,391,368 outstanding shares of common stock. After
giving effect to the sale of all 1,200,000 shares at an offering price of $2.50
per share, the pro forma net tangible book value of Catalyst would be $573,071
or $0.12 per share of common stock. The amount represents an immediate increase
of net tangible book value (deficit) of $0.73 per share to the existing holders
of common stock and an immediate dilution of $2.38 per share to our new
investors.
The following tables illustrate this dilution:
Offering price per share of common stock $ 2.50
Net tangible pro forma book value (deficit)
per share as of June 30, 2003 $ (0.61)
Increase in net tangible pro forma book value
per share attributable to new investors $ 0.73
Pro forma net tangible book value
per share after the offering $ 0.12
Dilution per share to new investors $ 2.38
Dilution per share to new investors as
a percentage 95%
PLAN OF DISTRIBUTION
Conduct of this offering
We are offering the shares of common stock on a best efforts basis with no
minimum number of shares to be sold. We have retained Keating Securities, LLC to
act as our exclusive placement agent in connection with the offers and sales of
our common stock on a best efforts basis.
The placement agent is not obligated to and does intend itself to, take (or
purchase) any of the shares of common stock being offered. Investors' funds will
not be accepted before effectiveness of the registration statement of which this
prospectus is a part. This offering will not continue after June 30, 2004,
unless extended by the placement agent and Catalyst to a date not more than 90
days thereafter. The placement agent reserves the right to withdraw, cancel,
modify or reject an order for the purchase of shares in whole or in part for any
reason and Catalyst reserves the right to terminate this offering at any time.
Prior to this offering, there has been no public market for our securities. The
placement agent and Catalyst determined the offering price for the common stock
in arm's length negotiations, taking into account our history, industry,
financial condition, overall current market conditions and potential demand for
this offering.
We will pay the placement agent a commission of up to 10% of the gross proceeds
that we receive from the sale of our securities. The placement agent may allow
to certain dealers who are members of the National Association of Securities
Dealers concessions of not more than 5%; however, for those shares sold solely
by the Placement Agent without the assistance of a selected dealer, Catalyst
will pay the placement agent 5% of the gross proceeds from the sale of those
shares. We have agreed to pay to the placement agent its expenses related to
this offering on an accountable basis to cover, without limitation, counsel fees
and travel. We have also agreed to indemnify the placement agent against certain
liabilities, including liabilities under the Securities Act.
We have agreed to issue to the Placement Agent a warrant to purchase from us one
share of common stock for each ten shares sold in this offering at an exercise
price per share equal to 125% of the offering price per share hereunder. The
warrant may be exercised during the 48 month period beginning one year from the
date of effectiveness of the registration statement and is not redeemable. The
warrant is not transferable for one year following the effective date of the
registration statement, except to an individual who is an officer or partner of
the Placement Agent, by will or by the laws of descent and distribution. The
warrant and the common stock that may be issued upon its exercise have
registration rights. We will cause the registration statement to remain
effective until the earlier of the time that all of the warrant has been
exercised and the date which is three years after the effective date of this
offering. The common stock issued to the Placement Agent upon exercise of the
warrant will be freely tradable.
The holder of the warrant will have, in that capacity, no voting, dividend or
other shareholder rights. Any profit realized by the Placement Agent on the sale
of the shares that may issued upon exercise of the warrant may be deemed to be
additional compensation to the placement agent. During the term of the warrant,
the holders thereof are given the opportunity to profit from a rise in the
market price of our common stock.
On August 27, 2003, we compensated Keating Investments, LLC by issuing 200,000
shares of our restricted common stock in connection with the Securities Exchange
Agreement between us and Whitco Company LP. Keating Securities, LLC is acting as
placement agent of this offering. The president and 60% owner of Keating
Securities is Timothy J. Keating, who is also the managing member of Keating
Investments, LLC and the son of Kevin R. Keating, who was our president and a
director at the time and is currently a director.
Keating Securities plans to offer and sell the shares in specific states in
which the shares are registered or are exempt from registration, following the
procedures for subscribing as outlined in this prospectus, and in compliance
with Regulation M.
We will have use of any proceeds received once a subscription agreement is
executed and delivered to us and the funds have been released from escrow. All
funds received by Keating Securities, in its capacity as placement agent, will
be immediately deposited (by Noon on the first business day after receipt) in
the escrow account with _______________, as escrow agent, under the terms of an
escrow agreement entered into by us, Keating Securities and the escrow agent.
The proceeds of the offering shall be non-refundable except as may be required
by applicable law.
The placement agent does not intend to confirm sales to any accounts over which
it exercises discretionary authority.
USE OF PROCEEDS
The gross proceeds of this offering if fully subscribed will be $3,000,000 and
will be used approximately as follows:
Percentage
of net proceeds
Amount of the offering
----------------------------
Offering expenses $ 375,000 12.5%
Subordinated Debt Repayment $1,150,000 38.3%
Product Design and Development $ 500,000 16.7%
Working capital $ 975,000 32.5%
Total $3,000,000 100%
If $2,000,000 is raised in this offering, proceeds will be used
approximately as follows:
Percentage
of net proceeds
Amount of the offering
----------------------------
Offering expenses $ 275,000 13.8%
Subordinated Debt Repayment $ 700,000 35%
Product Design and Development $ 500,000 25%
Working capital $ 525,000 26.2%
Total $2,000,000 100%
If $1,000,000 is raised in this offering, proceeds will be used
approximately as follows:
Percentage
of net proceeds
Amount of the offering
----------------------------
Offering expenses $ 175,000 17.5%
Subordinated Debt Repayment $ 500,000 50%
Product Design and Development $ 175,000 17.5%
Working capital $ 150,000 15%
Total $1,000,000 100%
We will have the right to reallocate the proceeds for the above categories if we
believe such changes in expenditures benefit our business.
BUSINESS
Overview
We formed under the name Wentworth III, Inc. in March, 2001 as a blank check
company pursuant to Rule 419 under the Securities Act of 1933, as amended. We
had no operating business. On completion of our public offering of 50,000 shares
of common stock in November, 2002, we placed $45,000 of the proceeds into
escrow, subject to the closing of the transaction with Whitco. We paid no cash
compensation to any officer or director in their capacities as such prior to the
transaction with Whitco. On August 27, 2003, we completed the share exchange
transaction with Whitco, whereupon Whitco became our sole wholly-owned
subsidiary. On September 3, 2003, we changed our name to Catalyst Lighting
Group, Inc.
Whitco is a nationwide marketer and distributor of steel and aluminum outdoor
lighting poles. Founded in 1969, Whitco sells poles directly to original
equipment manufacturers (OEM's) and indirectly to other third parties through
its own contracted sales representatives. We seek to have Whitco become the
preferred marketer and distributor of steel and aluminum lighting pole
structures and accessories, and we may attempt to acquire or develop
subsidiaries to pursue additional market opportunities. We believe the necessary
systems and people are in place to aggressively grow and expand in Whitco's
defined markets.
In June 2000, an investment group led by Dennis H. Depenbusch, who currently
serves as our Chief Executive Officer and Chairman of our Board of Directors,
acquired the assets of Whitco from their original owners. Whitco has no
subsidiaries.
Whitco divides the light pole industry into eight different areas serving four
distinct revenue sources. Whitco's participation in each area is presented in
the table below.
======================= ================ ========== =============== ================
Commercial City and Utility and Department of
And Industrial County Municipality Transportation
----------------------- ---------------- ---------- --------------- ----------------
Area Yes Yes Yes No
----------------------- ---------------- ---------- --------------- ----------------
Sports Yes Yes Yes No
----------------------- ---------------- ---------- --------------- ----------------
Highmast Yes Yes Yes No
----------------------- ---------------- ---------- --------------- ----------------
Street/Roadway Yes Yes Yes No
----------------------- ---------------- ---------- --------------- ----------------
Traffic Control No No No No
----------------------- ---------------- ---------- --------------- ----------------
Decorative No No No No
----------------------- ---------------- ---------- --------------- ----------------
Sign Structure No No No No
----------------------- ---------------- ---------- --------------- ----------------
Communication Tower No No No No
======================= ================ ========== =============== ================
Whitco has and will continue to operate in the commercial and industrial
lighting ("C&I"), city and county and utility and municipality areas. The C&I
market represents the commercial sales area of the market, primarily commercial
real estate developments and industrial development areas not related to
governmental areas. City and County areas are those developments directed by
local governments without the involvement of federal highway funds. In some
cases Whitco lighting agents also place sales emphasis on local developments by
cities and counties. Utility and Municipality represent those developments
directed by local utilities or municipal developments in which the local utility
controls the lighting aspects of the real estate development, without the
involvement of federal highway funds. In local areas, a utility may direct the
installation of lighting in areas and provide a usage fee to the local
government for that lighting area. In some cases, Whitco lighting agents sell to
utilities. Department of Transportation sources represent those areas involving
the deployment of both local and federal highway funds with specifications
directed by the local or state governments as well as the federal government.
Whitco rarely participates in business with the Department of Transportation as
it is a different sales channel than Whitco traditionally serves. Whitco markets
area and sports lighting products through its catalog and via the Internet at
www.whitcopoles.com.
Products and Services
All of Whitco's poles are made to order and are sold either directly to OEM's
from our primary offices in Fort Worth, Texas or indirectly through sales
representatives, known in the lighting industry as lighting agencies.
OEM's sell existing lines of lighting fixtures. Some OEM's manufacture lighting
poles as well, while other source pole manufacturing on a private label basis
through companies such as Whitco. Whitco sells poles which complement existing
fixture lines, provides engineering expertise and has specialty design features
to allow the poles to be easily integrated with the lighting fixture. The entire
unit, consisting of the pole and fixtures, is then shipped to the customer under
the OEM brand name. Although some OEM's manufacture their own poles, they often
require Whitco's poles because they do not have the capability to manufacture
the poles required for a specific order. When selling to an OEM, Whitco arranges
shipment direct to the project location for final assembly and installation by
third parties. Whitco has the capability to join an OEM on national account
bids. In 2002, Whitco sold to approximately 32 OEM customers.
Whitco has contracts in place with approximately 75 lighting agencies, each in
separate, defined geographic territories throughout the United States. Each
lighting agency contract typically gives the lighting agency the exclusive right
to sell Whitco poles in a given geographical location in exchange for such
agency agreeing to sell only poles manufactured by Whitco. The typical exception
allows lighting agencies to sell poles from their OEM fixture providers and
Whitco to sell to OEMs poles to deliver into the lighting agency's territory.
Lighting agency contract terms can vary by territory although all contracts with
lighting agencies may be terminated by us on 30 days' notice. One individual
lighting agency accounted for more than 10% of Whitco's sales for the fiscal
year ended September 30, 2002, and no agency accounted for more than 10% of
total sales for the 12 months ended December 31, 2002. These agencies primarily
sell fixtures and Whitco's poles complement their product lines. Whitco works
diligently to find the appropriate agency in a territory to sell its products
and further strives to have that agency sell only poles manufactured by Whitco.
A typical order will come from an agency for shipment direct to a construction
location with billing directed to the electrical distributor or contractor.
Terms are predominantly, net 30 days.
For the complete 12 months ended December 31, 2002, Lithonia Lighting, an OEM
customer, accounted for 16% of total revenues; no other single customer
accounted for more than 10% of total revenues. For the nine-month fiscal year
ended September 30, 2002, Lithonia Lighting accounted for 14% of total revenues
and one other lighting agency accounted for 10% of total revenues; no other
single customer accounted for more than 10% of total revenues. Whitco believes
it gains and keeps top lighting agents and OEMs through competitive pricing,
timeliness and the ability to effectively deliver needed technical information
on specified products.
Design, Manufacturing and Distribution
Whitco designs all of its own poles and completes specification and stress
calculations using an in-house engineering team. Whitco assists its sales agents
and OEM's with project submittals to specifying engineers for projects. Whitco
then submits a work order to a manufacturer based on the product specified and
ordered through the sales agent or OEM. Whitco purchases raw steel tubes from
both domestic and foreign suppliers, primarily relying on Trans America Power
Products to supply steel tubes. Whitco also places orders with three other
suppliers. The raw steel tubes are held in inventory at one of two designated
manufacturing locations in Fort Worth, Texas. These manufacturers complete all
stages of pole fabrication, including painting and attaching a steel base. All
operational aspects of manufacturing, including inventory control, purchasing,
adherence to specifications and shipping are performed by Whitco. Whitco has no
financial responsibility for raw aluminum product inventory as the poles are
made to order from one of two aluminum pole manufacturers.
Once an order has been placed in production, the time until completed poles are
ready for shipment is approximately one week, while larger orders can take up to
three weeks. Once completed, the lighting poles are shipped directly from the
manufacturer to the customer.
Employees
Whitco currently has 13 full-time employees, including its two executive
officers, one controller, three employees performing sales and marketing
functions, two performing engineering, drafting and quotations functions, one in
production control and dispatch and four performing customer service and
clerical duties. We also have sales representative agreements in place with
approximately 75 sales representatives across the continental United States.
They are not employees of Whitco, but they do receive commissions based on
sales.
Certain of our employees have been granted 10 year options to purchase shares of
Catalyst. There are approximately 808,632 options issued through August 31,
2003. Vested options currently total approximately 550,603 shares. Twenty
percent (20%) of the non-vested options vest on each anniversary date of the
option grant. The holders of these options, their position in Whitco and the
number of options held by each, are as follows:
Name Title # Options Issued
Henry Glover President/CEO (of Whitco) 250,222
Kevin B. Medlin Vice President Sales 98,279
Thomas Lach Vice President Engineering 98,279
Ben Mosqueda Manager Quotations/Drafting 11,727
Kip Pritchard Vice President 350,125
Total 808,632
Trademark and Copyright Protection
Whitco has applied for trademark protection for its own logo as well as the logo
of Catalyst Lighting Group, Inc. Whitco has submitted its initial applications
for these logos to the United States Patent and Trademark Office. With respect
to any pole designs or lighting fixtures Whitco may design, Whitco intends to
seek patent protection where applicable.
Business Strategy
Virtually all of Whitco's revenues are currently generated in the C&I market. We
intend to continue serving this niche while seeking to acquire or start new
business ventures in an attempt to increase market share. Our focus on the C&I
market is the result of Whitco's historical expertise in this market and the
fact that most of Whitco's lighting agents and OEM customers are focused on this
area.
Whitco is placing particular emphasis on the sports, high mast and area lighting
sectors within the commercial and industrial markets. The sports lighting area
represents those venues lit by outdoor lighting for night time play. This ranges
from professional sports venues to local parks and recreation areas. Whitco has
the ability to complete pre-wiring for its sports lighting products prior to
shipment. High mast refers to those installations requiring large area lighting
needs of commercial areas. These represent typical heights of 55 feet or higher
with multiple fixtures installed at the top of the pole. Area lighting typically
represents the lighting of an outdoor area such as parking lots.
Our future plans may include a merger with or into, or an acquisition of, other
businesses serving the pole and lighting industries. Our future plans may also
include entering niche parts of the lighting market in which we do not currently
compete.
Competition
Whitco competes with pole manufacturers as well as those OEM's which manufacture
poles themselves. Whitco also competes with OEM's, including some that are
customers of Whitco on other jobs. In terms of sales, Whitco is approximately in
the bottom half of the top 10 pole manufacturing companies. Whitco competes
against exclusive pole manufacturers such as K-W Industries, United Lighting
Standards and Valmont Industries. Some OEM companies that also manufacture poles
include Hubbell Lighting, Cooper Lighting, Musco Lighting (in the sports segment
only) and Ruud Lighting. Whitco competes with other pole companies on a price
and service basis. Whitco competes by seeking the most qualified, most connected
sales agents and OEM's in a given territory.
History
Whitco Sales, Inc. dates its original history to 1969, when it was formed by the
Pritchard family in Fort Worth, Texas. Whitco was originally formed to provide
both lighting and pole products. During the 1980's, Whitco made the decision to
concentrate on steel pole products sold through agents and OEM's throughout the
United States. Whitco Company, L.L.P., a partnership consisting of three
investors led by Dennis H. Depenbusch, was formed on June 27, 2000 and acquired
the assets of Whitco Sales Inc. from the Pritchard family on June 30, 2000. At
the time of the acquisition, Whitco Sales, Inc. was an S Corporation 50% owned
by James and Patsy Pritchard and 50% owned by James K. "Kip" Pritchard. Upon
acquisition of Whitco in June 2000, Whitco expanded its product offering to
include additional steel products as well as aluminum poles. In 2002, Whitco
further expanded its product line to include pre-wired products for the sports
lighting segment. On May 1, 2002, two of the three original investors were
bought out by a replacement investor group again led by Dennis H. Depenbusch.
The original investors, along with Mr. Depenbusch, were Mega Investment Group,
LLC and Quest Financial Partners, LP. Their 2/3 partnership interest was
purchased on May 1, 2002 for $1.2 million through the sale of partner units and
the issuance of additional subordinated debt. Four individual investors
purchased partnership units for a cumulative price of $654,000 and subordinated
debt was issued to four individual investors for $546,000. As of February 12,
2003, Whitco entered into the Securities Exchange Agreement with Wentworth III,
Inc., pursuant to which its partners received, through an exchange of all of
their partnership units, and options to purchase partnership units, 2,991,368
shares of common stock, and options to purchase 808,632 shares of common stock.
This transaction closed on August 27, 2003, at which time Whitco became our
wholly-owned subsidiary. We changed our name from Wentworth III, Inc. to
Catalyst Lighting Group, Inc. on September 3, 2003.
Management Experience
Whitco believes that it enjoys significant advantages over other companies
within its industry, including the advantage generated by the experience of its
management team. We believe Whitco's management has the needed experience,
talent and knowledge to grow and prosper in this industry. Set forth below is a
brief description of the business experience and background of Whitco's
executives, based upon information they have supplied to us.
Henry M. Glover - President/CEO of Whitco Company, LP; President and Director of
Catalyst
Mr. Glover, 46, joined Whitco in January 2002 as the President. Mr. Glover has
twenty years of experience in the lighting industry in key leadership roles.
These assignments included work for three of the larger lighting conglomerates
in the country: Genlyte Thomas, where he was Vice President and general manager
of its Wide-Lite division from 1996-2000; USI Lighting from 1990-1992, where he
was Vice President of Sales and Vice President of Lighting from 1993-1996; and
Lithonia Lighting, where he worked from 1981 through 1989 in various positions,
including analyst, product development manager, marketing manager and regional
sales manager. Wide-Lite is a manufacturer of energy-efficient specification
grade lighting and lighting controls. Mr. Glover has held senior level positions
in sales and operational management for these companies. In 2001, Mr. Glover was
CEO and principal of iCareers, LLC, an Internet recruiting site focused on
lighting placements. Mr. Glover has an MBA from the University of Georgia and a
BS in Economics from the College of Charleston. Mr. Glover is also the President
and a member of the Board of Directors of Catalyst.
Kevin B. Medlin - Vice President of Sales of Whitco Company, LP
Mr. Medlin, 42, joined Whitco in October 2001 as its national sales manager. Mr.
Medlin has over twenty years experience in the lighting industry in both
electrical distribution and sales management for a major lighting manufacturer.
Prior to joining Whitco, Mr. Medlin was employed by Thomas Lighting, a division
of Genlyte Thomas as a Regional Sales Manager for the West/Central Region from
1996 to 2001. Mr. Medlin has a BS in Business Administration from the University
of Texas.
Thomas S. Lach - Vice President of Engineering of Whitco Company, LP
Mr. Lach, 34, joined Whitco in October 2000. Mr. Lach has over 11 years
experience in steel structural design and engineering. Prior to joining Whitco,
Mr. Lach worked for GE Sports Lighting Systems, Fort Worth, Texas as manager of
engineering from July 1999 to October 2000. GE Sports Lighting Systems is a
provider of sports lighting systems through a nation-wide sales representative
network. They provide comprehensive lighting solutions for outdoor sports
lighting venues. From September 1998 to July 1999, Mr. Lach worked as Vice
President of Engineering for Trans American Power Products, Houston, Texas.
Trans American Power Products is both a tube and finished pole provider for the
United States. It serves customers such as Whitco and also maintains its own
finished product sales representation base. It provides steel poles. Mr. Lach
previously was a project engineer for Valmont Industries in Valley, Nebraska
from March 1997 to September 1998. Valmont is a leader in designing and
manufacturing poles, towers and structures for lighting, wireless communication
and utility markets, and a provider of protective coating services. Valmont also
manufactures mechanized irrigation equipment for agriculture. In addition,
Valmont produces a wide variety of tubing for commercial and industrial
applications. Mr. Lach has a BS in Mechanical Engineering from the University of
Missouri, Rolla and has a PE in Civil Engineering for the State of Nebraska.
James K. "Kip" Pritchard - Vice President of Whitco Company, LP
Mr. Pritchard, 47, has been with Whitco for 24 years in sales. Prior to the
acquisition, he was President of Whitco. Mr. Pritchard has a BS Degree in
Business Administration from Texas Wesleyan University in Fort Worth, Texas.
Legal Proceedings
We are not a party to any litigation or other legal proceedings.
Seasonality
The lighting and pole industry is seasonal in nature, as construction of the
facilities or roads where the lighting structures may be placed is seasonal
depending on the geographic location of the project.
Properties
We lease space in Fort Worth, Texas. These facilities serve as our corporate
headquarters and operations center. The facilities encompass approximately 2,704
square feet of space at a fixed rental cost of $3,347 per month. We believe
these facilities are adequate for the foreseeable future. The lease expires
November 14, 2003 and we are currently negotiating a new lease with the
landlord.
Accounting Treatment
Although we are the parent corporation, for accounting purposes, our acquisition
of Whitco was treated as the acquisition of us by Whitco. This is known as a
reverse acquisition and a recapitalization of Whitco. Whitco is the acquirer for
accounting purposes because the former partners of Whitco received the larger
percentage of our common stock and voting rights than our current stockholders.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with the "Pro
Forma Condensed Consolidated Financial Information" and the accompanying
introduction and notes, as well as the Whitco consolidated financial statements
and their accompanying notes, included elsewhere in this prospectus. Certain
statements contained under this caption and elsewhere in this prospectus,
regarding matters that are not historical facts are forward-looking statements.
All statements that address operating performance, events or developments that
management expects to incur in the future, including statements relating to
sales and earning growth or statements expressing general optimism about future
operating results are forward-looking statements. These forward-looking
statements are based on management's current views and assumptions regarding
future events and operating performance. Many factors could cause actual results
to differ materially from estimates contained in these forward-looking
statements. The differences may be caused by a variety of factors, including,
but not limited to, adverse economic conditions, competitive pressures,
inadequate capital, unexpected costs, lower revenues or net income, the
possibility of fluctuation and volatility of our operating results and financial
condition, inability to carry out marketing and sales plans and loss of key
executives, among other things.
We formed under the name Wentworth III, Inc. in March, 2001 as a blank check
company, which is essentially a vehicle to pursue a business combination. We
offered our common stock to the public pursuant to Rule 419 promulgated under
the Securities Act of 1933, as amended and closed our offering, raising proceeds
of $50,000, in November, 2002. We had no operating business and all our
activities since inception, and prior to the share exchange with Whitco, had
been related to formation, completing our initial public offering in which we
raised $50,000 of gross proceeds from the sale of 50,000 shares of common stock
and finding suitable merger or acquisition candidates. Pursuant to Rule 419, the
gross proceeds from the offering of $50,000, less 10% for expenses incurred in
connection with the IPO, were held in escrow subject to the closing of the
transaction with Whitco. We paid no cash compensation to any officer or director
in their capacities as such prior to the transaction with Whitco. On August 27,
2003, we completed the share exchange transaction with Whitco, whereupon Whitco
became our sole wholly-owned subsidiary. On September 3, 2003, we changed our
name to Catalyst Lighting Group, Inc.
Therefore, based on the above transaction, we have provided management's
discussion and analysis of financial condition and results of operations for
Whitco.
RESULTS OF OPERATIONS
Critical Accounting Policies and Estimates
Whitco's condensed financial statements have been prepared in accordance with
accounting principles generally accepted in the United States, which require
Whitco to make estimates and judgments that affect the reported amount of
assets, liabilities, revenues and expenses, and the related disclosures. A
summary of those significant accounting policies can be found in Whitco's Notes
to the Consolidated Financial Statements included in this report. The estimates
used by management are based upon their historical experiences combined with
management's understanding of current facts and circumstances. Certain of
Whitco's accounting policies are considered critical as they are both important
to the portrayal of Whitco's financial condition and the results of its
Operations and require significant judgments on the part of management.
Management believes that the following represent the critical accounting
policies of Whitco as described in Financial Reporting Release No. 60,
"Cautionary Advice Regarding Disclosure About Critical Accounting Policies,"
which was issued by the Securities and Exchange Commission: inventory, goodwill,
allowance for doubtful accounts, and warranty policy.
Whitco states inventory at the lower of cost or market, determined under the
first-in, first-out method. Whitco maintains a significant amount of raw
material inventory to serve future order demand of customers. While management
believes its processes for ordering and controlling inventory are adequate,
changes in economic, or industry conditions may require Whitco to hold inventory
longer than expected or write outdated inventory off as the result of
obsolescence.
During fiscal 2001, Whitco amortized goodwill using a fifteen-year life.
Beginning January 1, 2002, Whitco adopted Statement of Financial Accounting
Standards No. 142 (SFAS 142) "Goodwill and Other Intangible Assets," and as a
result ceased amortizing goodwill. Whitco tests goodwill for impairment annually
or on an interim basis if an event or circumstance occurs between the annual
tests that may indicate impairment of goodwill. Impairment of goodwill will be
recognized in operating results in the period it is identified.
Whitco utilizes its best estimate for allowance for doubtful accounts based on
past history and accruing the expense as a percentage of sales. Whitco grants
credit to distributors of sports and area lighting poles located throughout the
United States of America. Collateral is generally not required for trade
receivables. While management considers Whitco's process to be adequate to
effectively quantify its exposure to doubtful accounts, changes in economic,
industry or specific customer conditions may require an adjustment of the
allowance for doubtful accounts.
Whitco's customers receive a one year product warranty for defects in material
and workmanship providing repair or replacement or refund of the purchase price.
Whitco provides an accrual as a reserve for potential warranty costs based on
historical experience and accruing as a percentage of sales. While management
considers Whitco's process to be adequate to effectively quantify its exposure
to warranty claims based on historical performance, changes in warranty claims
on a specific or cumulative basis may require Whitco to adjust its reserve for
potential warranty costs.
Impact of Recently Issued Accounting Pronouncements - In July 2002, the FASB
issued Statements of Financial Accounting Standards No. 146, Accounting for
Costs Associated with Exit or Disposal Activities (SFAS 146). SFAS 146 requires
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or disposal
plan. Examples of costs covered by SFAS 146 include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity. SFAS
146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. The adoption of SFAS 146 is not expected to have a
material effect on the Company's financial position or results of its
operations.
In August 2002, the FASB issued Statements of Financial Accounting Standards No.
147, Acquisitions of Certain Financial Institutions (SFAS 147). SFAS 147
requires financial institutions to follow the guidance in SFAS 141 and SFAS 142
for business combinations and goodwill and intangible assets, as opposed to the
previously applied accounting literature. This statement also amends SFAS 144 to
include in its scope long-term customer relationship intangible assets of
financial institutions. The provisions of SFAS 147 do not apply to the Company.
In December 2002, the FASB issued Statements of Financial Accounting Standards
No.148, Accounting for Stock-Based Compensation - Transition and Disclosure - An
Amendment of FASB Statement 123 (SFAS 123). For entities that change their
accounting for stock-based compensation from the intrinsic method to the fair
value method under SFAS 123, the fair value method is to be applied
prospectively to those awards granted after the beginning of the period of
adoption (the prospective method). The amendment permits two additional
transition methods for adoption of the fair value method. In addition to the
prospective method, the entity can choose to either (i) restate all periods
presented (retroactive restatement method) or (ii) recognize compensation cost
from the beginning of the fiscal year of adoption as if the fair value method
had been used to account for awards (modified prospective method). For fiscal
years beginning December 15, 2003, the prospective method will no longer be
allowed. The Company currently accounts for its stock-based compensation using
the intrinsic value method as proscribed by Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees and plans on continuing using
this method to account for stock options, therefore, it does not intend to adopt
the transition requirements as specified in SFAS 148. The Company has adopted
the new SFAS 148 disclosure requirements of SFAS 148 in these financial
statements.
In May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity ("FAS 150"). FAS
150 requires that three classes of freestanding financial statements that embody
obligations for entities be classified as liabilities. Generally, FAS 150 is
effective for financial instruments entered into or modified after May 31, 2003
and is otherwise effective at the beginning of the first interim period
beginning after June 15, 2003. The Company does not believe the adoption of FAS
150 will have a material impact on its financial position or results of
operations.
The FASB issued Interpretation ("FIN") No. 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, in November 2002 and FIN No. 46, Consolidation of
variable Interest Entities, in January 2003. FIN No. 45 is applicable on a
prospective basis for initial recognition and measurement provisions to
guarantees issued after December 2002; however, disclosure
requirements are effective immediately. FIN No. 45 requires a guarantor to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligations undertaken in issuing the guarantee and expands the required
disclosures to be made by the guarantor about its obligation under certain
guarantees that it has issued. The adoption of FIN No. 45 did not have a
material impact on the Company's financial position or results of operations.
FIN No. 46 requires that a company that controls another entity through interest
other than voting interest should consolidate such controlled entity in all
cases for interim periods beginning after June 15, 2003. Management does not
believe the adoption of FIN No. 46 will have a material impact on its financial
position or results of operations.
Nine months ended June 30, 2003 compared to the nine months ended June 30, 2002
The unaudited financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information. In our opinion, we have included all adjustments,
consisting only of normal recurring accruals, considered necessary for a fair
presentation.
Revenue. For the nine months ended June 30, 2003, the recognized
revenue of Whitco was $10,644,295. For the nine months ended June 30, 2002, the
recognized revenue of Whitco was $9,600,503. Cost of goods sold in the nine
months ended June 30, 2003, was $7,277,750, which generated a gross margin of
31.6%, versus 31.8% for the nine months ended June 30, 2002. The increase in
sales can be attributed to an increase in overall pole sales through agency
customers.
Other operating costs and expenses. For the nine months ended June 30,
2003, operating expenses totaled $3,614,158, compared to $2,633,603 for the nine
months ended June 30, 2002, respectively. The increase in operating expenses
resulted from the increase in commissions expense paid, legal and accounting
expenses, product development expense, travel and entertainment and health
insurance as described below. Included in other operating costs and expenses are
non-cash costs related to amortization expense incurred of approximately $0 for
the nine months ended June 30, 2003, and of $59,874 for the nine months ended
June 30, 2002. The decrease in amortization expense is the result of Whitco's
adoption of Statement of Financial Accounting Standards No. 142 (SFAS 142) in
January 1,2002. This change in policy resulted in the elimination of
amortization of goodwill.
Commission expense. For the nine months ended June 30, 2003, commission
expense was $1,810,681, compared with $1,301,214 for the nine months ended June
30, 2002. The increase in commissions paid is the result of an increased mix of
sales of products through agency customers compared to the previous comparative
period.
Legal and Accounting Expense. For the nine months ended June 30, 2003
was $223,140, compared with $54,732 for the nine months ended June 30, 2002. The
increases in legal and accounting for the comparative periods reflect additional
expenses in the period related to the change in fiscal year and in accounting
fees and legal fees associated with the merger to become Catalyst Lighting
Group.
Product development expense. For the nine months ended June 30, 2003,
product development expense was $127,847, compared with $0 for the nine months
ended June 30, 2002. The increase in product development for the comparative
nine-month period is principally attributable to the further development of
Whitco's sports lighting product offering.
Salaries and wages. For the nine months ended June 30, 2003, salaries
and wages totaled $803,681, compared to $685,345 for the nine months ended June
30, 2002. The increase in salaries and wages can be attributed to additional
personnel hired during the first nine months of the fiscal year.
Travel and entertainment expense. For the nine months ended June 30,
2003 travel and entertainment expense was $108,227, compared with $65,224 for
the nine months ended June 30, 2002. The increases in travel and entertainment
expense for the comparative periods reflect additional travel and customer
visitations during the period.
Health and general insurance expense. For the nine months ended June
30, 2003 was $97,789, compared with $65,443 for the nine months ended June 30,
2002. The increases in health insurance for the comparative periods reflect a
general increase in premiums as well as additional employees choosing to
participate in the program. Whitco recently changed its benefit offering to its
employees resulting in savings compared to its previous health insurance
offering.
Interest expense. Interest expense for the nine months ended June 30,
2003 was $220,997, compared with $209,099 for the nine months ended June 30,
2002. The increase in interest expense for the comparative periods reflect the
increase in both the operating credit line as well as an increase in
subordinated debt.
Year ended December 31, 2002 compared to the year ended December 31, 2001
In 2002, Whitco changed its fiscal year end from December 31, to
September 30. For purposes of a financial comparison of 12 month results, Whitco
is combining its September 30, 2002 9 month year end audited numbers with its 3
month reviewed financial results. The combination of the pro-forma 12 months
ended December 31, 2002 is summarized in the following table.
Quarter 9 Months 12 Months 12 Months
Ended Ended Ended Ended
12/31/02 9/30/02 12/31/02 12/31/01
-----------------------------------------------------------------------------------------------
Sales $ 3,282,406 $ 10,243,036 $ 13,525,442 $ 11,784,438
-----------------------------------------------------------------------------------------------
Cost of Sales $ 2,172,735 $ 7,169,790 $ 9,342,525 $ 7,887,188
-----------------------------------------------------------------------------------------------
Gross Margin on Sales $ 1,109,671 $ 3,073,246 $ 4,182,917 $ 3,897,250
-----------------------------------------------------------------------------------------------
General Selling and
Administrative
Expenses $ 1,104,146 $ 2,700,835 $ 3,804,981 $ 3,053,662
-----------------------------------------------------------------------------------------------
Amortization of
Goodwill $ 0 $ 0 $ 0 $ 229,797
-----------------------------------------------------------------------------------------------
Income from
Operations $ 5,525 $ 372,411 $ 377,936 $ 613,791
-----------------------------------------------------------------------------------------------
Interest Expense $ 71,519 $ 224,677 $ 296,196 $ 292,138
-----------------------------------------------------------------------------------------------
Income (Loss) Before
Pro Forma Income
Taxes ($ 65,994) $ 147,734 $ 81,740 $ 321,653
-----------------------------------------------------------------------------------------------
Pro Forma Income
Taxes $ 22,838 ($ 58,062) ($ 35,224) ($ 123,122)
-----------------------------------------------------------------------------------------------
Pro Forma Net
Income (Loss) ($ 43,156) $ 89,672 $ 46,516 $ 198,531
-----------------------------------------------------------------------------------------------
Revenue. For the twelve month period ended December 31, 2002, the
recognized revenue of Whitco was $13,525,442. For the year ended December 31,
2001, the recognized revenue of Whitco was $11,784,438. Cost of goods sold for
the twelve month period ended December 31, 2002 was $9,342,525, which generated
a gross margin of 30.9%, versus 33.0% in 2001. The decrease in gross margin
percentage for the comparative twelve-month period is principally attributable
to the product mix sold in 2002 vs. 2001 as lower margin category products were
sold during 2002. One particular project in 2001 contributed primarily to this
difference; the project, shipped in the quarter ended December 31, 2001 resulted
in revenue totaling approximately $1.3 million with over 50% gross margin.
General Selling and Administrative Expenses. For the twelve month
period ended 2002, General Selling and Administrative expenses totaled
$3,804,981 compared to $3,053,662 for the year ended December 31, 2001,
respectively. The increase in operating expenses resulted from the salaries,
wages and benefits, increase in commissions, product development, travel and
entertainment, accounting, legal and professional fees.
Salaries, Wages and Benefits for the twelve month period ended December
31, 2002 was $1,158,929 compared with $820,588 for the year ended December 31,
2001. The increase in salaries, wages and benefits reflects primarily an
increased headcount dedicated to the sales and administration effort at Whitco.
Salaries, exclusive of payroll taxes and fees were $950,899 for the twelve month
period ended December 31, 2002, and $721,730 for the year ended December
31,2001. As a percentage of gross sales, salaries, wages and benefits were 8.6%
of sales in the twelve month period ended December 31, 2002, and 7.0% of sales
for the year ended December 31, 2001.
Commissions for the twelve month period ended December 31, 2002 was
$1,900,600 compared with $1,705,684 for the year ended December 31, 2001. The
increase in commission expenses reflects increases in overall sales volume. As a
percentage of gross sales, commissions were 14.1% of sales in the twelve month
period ended December 31, 2002, and 14.5% of sales for the year ended December
31, 2001.
Product development for the twelve month period ended December 31, 2002
was $131,483 compared with $4,255 for the year ended December 31, 2001. The
increase in product development expense reflects additional investment in
Whitco's further development of a sports lighting line.
Travel and Entertainment for the twelve month period ended December 31,
2002 was $113,502 compared with $58,619 for the year ended December 31, 2001.
The increase in travel and entertainment expense reflects additional sales
travel related to additional customer and supplier trips taken during the year.
Accounting, Legal and Professional Fees for the twelve month period
ended December 31, 2002 was $113,736 compared with $67,700 for the year ended
December 31, 2001. The increase in Accounting, Legal and Professional Fees
reflects accounting and legal expenses related to the current merger described
herein. With respect to the $100,000 investment banking fee to be paid to
Keating Investments, LLC, such fee is taken into account as a cash requirement
on a going-forward basis and Whitco believes it has sufficient sales and
earnings through the ending of its fiscal year and the term indicated by the
investment banking fee to fund this obligation.
Included in general and administrative expenses are non-cash costs
related to amortization expense incurred of approximately $0 for the twelve
months ended December 31, 2002, and $229,797 for the year ended December 31,
2001. The decrease in amortization expense is the result of Whitco's adoption of
Statement of Financial Accounting Standards No. 142 (SFAS 142) in January 1,
2002. This change in policy resulted in the elimination of amortization of
goodwill. Had Whitco recorded amortization expense during the twelve months
ended December 31, 2002, unaudited pro forma net income (loss) would have been
($148,057).
Interest expense for the twelve month period ended December 31, 2002
was $296,196 compared with $292,138 for the year ended December 31, 2001. The
difference was attributable to an increase of subordinated debt as well as the
average increase of the operating credit line for the comparative periods.
Net income after pro forma income taxes for the 12 month period ended
December 31, 2002 and year ended 2001 was $46,516 and $198,531, respectively.
Liquidity and Capital Resources
At June 30, 2003, Whitco's working capital deficit was $846,980 which
represented a decrease in working capital of $700,002 over September 30, 2002.
Accrued liabilities decreased by $10,357. This decrease was offset by increases
in the following: Trade receivables increased from $2,280,109 at September 30,
2002 to $2,640,753 at June 30, 2003, including provision for bad debts of
$54,442 at September 30, 2002 and $48,456 at June 30, 2003. Receivables
increased in reflection to an increase in sales as the result of seasonality.
Other account changes include an increase in accounts payable of $726,511, an
increase in inventory of $469,892, an increase in revolving note payable of
$586,859 and an increase in pre-paid expenses of $5,545. The increase in
payables and inventory was attributed to orders placed for delivery of product
in 2003 as well as forecast demand in orders for the peak construction season of
2003. The changes in accrued liabilities, revolving note payable and pre-
paid expenses are related to normal timing of the different category of accounts
through this quarter. The increase in the working capital deficit is primarily
the result of the net loss of $468,590 for the nine months ended June 30, 2003.
Cash provided by (used in) operations for the nine months ended June 30, 2003,
the nine months ended June 30, 2002, nine months ended September 30, 2002 and
year ended December 31, 2001 was ($546,863), ($256,173), $397,110 and $327,469
respectively. The cash used by operations for the nine months ended June 30,
2003 resulted primarily from a loss of $468,590, an increase in trade
receivables of $360,643, an increase in inventories of $469,902 and a decrease
in accrued liabilities of $10,357. Accrued liabilities decreased primarily as
the result of payment of commissions. Prepaid expenses and other expenses
increased by $5,545, accounts payable increased by $726,510. For the nine month
period ended June 30, 2002, cash provided by operations resulted primarily from
net income of $214,103, an increase in accounts receivable of $1,003,612 and a
decrease in accounts payable of $116,846. These decreases were offset by
decreases in inventory of $387,721 and an increase in other accrued liabilities
of $176,496. Prepaid expenses and other expenses decreased by $8,403. For the
nine month period ended September 30, 2002, cash provided by operations resulted
from net income of $147,734, and an increase in accounts payable of $720,595 and
other accrued expenses of $223,004. These increases were offset by an increase
in accounts receivable of $813,817. Accrued liabilities increased as the result
of timing of commission payments. Also, inventory decreased by $34,068, prepaid
expenses and other expenses decreased by $21,938, and bad debt expense totaled
$32,406. For the year ended December 31, 2001, cash provided by operations
resulted from net income of $321,653 depreciation and amortization of $249,415,
and an increase in other accrued liabilities of $174,631. Accrued liabilities
increased as the result of timing of commission payments. Depreciation and
amortization is higher compared to other periods as the result of Whitco's
adoption of Statement of Financial Accounting Standards No. 142 (SFAS 142) in
January 1, 2002. This change in policy resulted in the elimination of
amortization of goodwill. These increases were off-set by increases in
inventories of $190,183, and decreases in accounts payable of $219,257.
Increases were also reported in prepaid expenses and other by $14,849 and
off-set by allowance for bad debt of $9,048. Receivables increased by $2,989.
Primarily as a result of purchases of property and equipment in the periods
described below, cash used in investing activities for the nine months ended
June 30, 2003, the nine months ended June 30, 2002, nine months ended September
30, 2002 and year ended December 31, 2001 was ($19,846), ($31,930), ($74,307)
and ($26,934)respectively.
Cash provided/(used) in financing activities for the nine months ended June 30,
2003, the nine months ended June 30, 2002, nine months ended September 30,2002
and year ended December 31, 2001 was $566,709, $288,106, ($322,803) and
($308,679) respectively. For the nine months ended June 30, 2003 there was an
increase in revolving notes payable of $586,859 and payments on short-term and
long-term notes payable of $20,150. For the nine months ended June 30, 2002,
there was an increase in revolving notes payable of $511,791 and payments on
short-term and long-term notes payable of $223,685. For the nine months ended
September 30, 2002, cash flows decreased as the result of redemption of
partner's interest of $1,200,000 to purchase the partnership interests of two
partners. This decrease was primarily matched by an increase from the proceeds
of long-term debt of $546,000 and the sale of partnership interest of $655,000.
Payments on short-term and long-term notes payable and revolving note payable
was $224,527 and $99,276, respectively.
For the year ended December 31, 2001, there was a $213,565 increase in revolving
note payable off-set by payments on short-term and long-term notes payable of
$228,644 and partners' distributions of $293,600. The partner's distributions
were made to pay partner's tax liabilities incurred during the year.
Material cash requirements for the next twelve months not in the ordinary course
of business relate to the expenses incurred in connection with the completion of
the merger and the securities offering described herein. This is expected to be
an additional $180,000 through September 30, 2003. Regarding repayment of debt,
over the next 12 months Whitco's current maturities of long term debt as of
August 31, 2003 is approximately $257,646, consisting of subordinated debt. As
of June 30, 2003, Whitco's current maturities of long term debt was
approximately $490,726, consisting of subordinated debt. This amount included
approximately $200,000 of subordinated debt due June 30, 2003. This debt was
repaid through the months of July and August. For the next 12 months, one
$200,000 payment is due on June 30, 2004, while the rest is spread evenly over
the entire year. Whitco and Catalyst intends to fund future payments on these
obligations through operational cash flow and further utilization of its
existing credit facility. Current debt repayments can be paid through Whitco's
cash flow or the additional availability afforded through the secured line of
credit.
Whitco currently has a $2,000,000 senior, secured credit facility with PNC Bank,
evidenced by a demand promissory note, and secured by all of our assets. The
outstanding balance at June 30, 2003 was approximately $1,673,884 and the
balance as of August 31, 2003 was approximately $1,965,351. Whitco can borrow
the lesser of $2,000,000 or the aggregate of 80% of eligible accounts receivable
and 50% of eligible inventory as defined in the agreement with PNC. Whitco
currently does not comply with certain portions of its agreement with PNC
relating to maintaining (1) a tangible net worth of not less than $300,000, (2)
a ceiling on debt to net worth ratio and (3) defined cash flow coverage of at
least 1 to 1. As a result, PNC can call the note, although the note could have
been called at any time in any event as it is a demand note. Whitco is in active
negotiations with alternative lenders and has received some commitment letters
indicating interest in this credit facility and will actively pursue alternative
lenders should the note with PNC be called. Consequences to Whitco will consist
of having to immediately put in place a new credit facility in an amount
sufficient to cover the entire PNC credit facility.
MANAGEMENT
Our officers and directors and further information concerning them are as
follows:
Name Age Position
Dennis H. Depenbusch 40 CEO and Chairman of the
Board of Directors
Henry Glover 46 President and Director
Kevin R. Keating 63 Director
Mary Titus 43 Director
Tracy B. Taylor 49 Director
Dennis H. Depenbusch
Mr. Depenbusch, 40, was the managing partner of Whitco Company, LLP since its
acquisition in June of 2000. Prior to his leading the acquisition of Whitco, he
was a Vice President for Euronet Worldwide from May 1995 to June 2000. Euronet
Worldwide is a provider of secure electronic financial transactions, ATM
software, point-of-sale outsourcing and mobile banking to a wide range of
industries. Mr. Depenbusch served as country manager from May 1995 to May 1998
in Poland and, from May 1998 to May 1999, served as Vice President in Germany,
overseeing expansion and acquisition activities for these countries. From May
1999 to May 2000, he was responsible for overseeing ATM deployment activities
and operational development for the United Kingdom. He also contributed to
Euronet's acquisition of venture capital financing and eventual listing on the
NASDAQ (EEFT). Mr. Depenbusch holds an MBA, Summa Cum Laude, and a BS in
Business from the University of Kansas.
Henry M. Glover
Mr. Glover, 46, joined Whitco in January 2002 as the President. Mr. Glover has
twenty years of experience in the lighting industry in key leadership roles.
These assignments included work for three of the larger lighting conglomerates
in the country: Genlyte Thomas, where he was Vice President and general manager
of its Wide-Lite division from 1996-2000; USI Lighting from 1990-1992, where he
was Vice President of Sales and Vice President of Lighting from 1993-1996; and
Lithonia Lighting, where he worked from 1981 through 1989 in various positions,
including analyst, product development manager, marketing manager and regional
sales manager. Wide-Lite is a manufacturer of energy-efficient specification
grade lighting and lighting controls. Mr. Glover has held senior level positions
in sales and operational management for these companies. In 2001, Mr. Glover was
CEO and principal of iCareers, LLC, an Internet recruiting site focused on
lighting placements. Mr. Glover has an MBA from the University of Georgia and a
BS in Economics from the College of Charleston. Mr. Glover is also the President
and CEO of Whitco.
Kevin R. Keating, 63, is an investment executive and for the past five (5) years
has been the Branch Manager of the Vero Beach, Florida office of Brookstreet
Securities Corporation. Brookstreet Securities is a full-service, national
network of independent investment professionals. Mr. Keating services the
investment needs of private clients with special emphasis on equities. For more
than 35 years, he has been engaged in various aspects of the investment
brokerage business. Mr. Keating began his Wall Street career with the First
Boston Corporation in New York in 1965. From 1968 through 1974, he was employed
by several institutional research boutiques where he functioned as Vice
President-Institutional Equity Sales. From 1974 until 1982, Mr. Keating was the
President and Chief Executive Officer of Douglas Stewart, Inc., a New York Stock
registered representative servicing the needs of individual investors. Mr.
Keating is a graduate of Holy Cross College with a degree in Business
Administration. Mr. Keating is a director of Wentworth II, Inc. and Wentworth
III, Inc. and holds other director of Wentworth I, Inc. and 99 Stuff, Inc. Mr.
Keating was the President, CFO and a director of Catalyst prior to consummation
of the transactions with Whitco.
Mary Titus, 43, is a director and a member of the audit committee. Since
December 2000, Ms. Titus has worked for uRoam Corporation, a web based remote
access provider, in Sunnyvale, CA. Ms. Titus is currently the Chief Financial
Officer, Vice President of Administration and the corporate Secretary for uRoam,
handling all finance, human resource and corporate compliance matters. From
October 1999 through June 2000, Ms. Titus was the Chief Financial Officer, Vice
President of Administration and the corporate Secretary for healthshop, an
Internet based retailer of health products. From September 1998 through January
1999, Ms. Titus was Chief Financial Officer and the corporate Secretary for Crag
Technologies, a San Jose based data storage company, where she was responsible
for all finance and corporate compliance matters. From April through August
1998, Ms. Titus handled integration and strategic acquisition matters for
Adaptec, following its acquisition of Ridge Technologies. Prior to that, Ms.
Titus handled all finance, securities and acquisition matters at Ridge
Technologies, a redundant storage controller company located in San Jose, CA.
Tracy B. Taylor, 49, is a director and a member of the compensation committee.
Since March, 2002, Mr. Taylor has been President of the Kansas Technology
Enterprise Corporation, Topeka, Kansas. From 2001 to the KTEC appointment, Mr.
Taylor was President of Taylor and Associates, a private equity investment firm.
From 1999-2001, Mr. Taylor was Vice President for Townsend Capital, Lee's
Summit, Missouri. From 1994 to 1999, he held various positions with Cohen Esrey
real estate services in Kansas City, Missouri. From 1988 to 1994, Mr. Taylor
held graduating positions leading to Treasurer and finally Vice President for
Administration for Sprint Corporation in Westwood, Kansas. Mr. Taylor received a
B.A. in history/political science,Magna Cum Laude, in 1976 from Bethany College
in Lindsborg, Kansas and an MBA with a finance concentration, from the
University of Kansas in 1979.
Remuneration
Prior to consummation of the transaction with Whitco, we did not provide cash
compensation to our officers or directors for their services. Upon the first
closing of the sale of shares offered hereby, each of our three outside
directors, Kevin R. Keating, Mary Titus and Tracy Taylor, will be compensated as
follows: For one year, they will each receive $2,000 for each board meeting
attended in person and $1,000 for each telephonic board meeting. After the first
year, they will receive $1,000 and $500, respectively. Additionally, each of Mr.
Keating, Ms. Titus and Mr. Taylor will receive 10,000 shares of common stock,
6,667 of which shall be immediately issuable and the remaining 3,333 of which
will be held in escrow and distributed to each of them provided they remain on
our board of directors for a period of one year. Members of our Board who serve
on the audit committee shall receive an additional $2,000 per meeting for the
first year of service and $1,000 per meeting for each year thereafter. The audit
committee chairman will receive $4,000 for the first year of service and $2,000
for each year thereafter in addition to the audit committee meeting fees.
Messrs. Depenbusch and Glover will not receive any additional compensation for
serving on our Board. To date, no Board of Directors' fees have been paid,
however, Whitco did reimburse board members for expenses incurred in connection
with informal meetings prior to the securities exchange with us.
The following table sets forth information concerning compensation for services
rendered to Whitco by its President and by its executive officers.
SUMMARY COMPENSATION TABLE
Long Term Compensation
The following table sets forth information regarding the compensation paid
during the years ended December 31, 2002, 2001, and 2000 by Whitco Company, LLP
to Dennis H. Depenbusch and Henry Glover. Mr. Depenbusch is Chairman and CEO of
Catalyst and Mr. Glover is a Board Member and President both are officers. There
are no other anticipated officer assignments at the present time.
Name and All Other Year Other
Principal Positions Ended Annual Securities
Compensation Dec 31, Salary Bonus Compensation Underlying
($) ($) ($) Options (#)
Dennis Depenbusch
Managing Partner (1) 2002 $130,000 $0 $0 0
Henry Glover
President 2002 $130,000 $0 $24,706(2) 57.125
Dennis Depenbusch
Managing Partner 2001 $100,000 $0 $0 0
Henry Glover
President(3) 2001 $0 $0 $0 0
Dennis Depenbusch
Managing Partner(4) 2000 $ 50,000 $0 $0 0
(1) Mr. Depenbusch was the managing partner of Whitco prior to consummation of
the transactions with Catalyst and is currently the CEO and Chairman of the
Board of Directors of Catalyst.
(2) Represents compensation related to relocation expenses associated with the
hiring of Mr. Glover.
(3) Henry Glover began employment with Whitco on January 2, 2002.
(4) Whitco Company, LLP acquired Whitco Sales, Inc. on June 30, 2000.
Option Grants in Nine Months Ended June 30, 2003 and Last Fiscal Year Ended
September 30, 2002.
No options to purchase partner units were granted to Dennis Depenbusch in the
nine months ended June 30, 2003 or the fiscal year ended September 30, 2002.
For the nine months ended June 30, 2003, options to purchase 17.5 partner units
were granted to Henry Glover at a strike price of approximately $2,890 per unit.
These options, on a converted basis represent approximately 22,736 shares at a
strike price of $0.86 per share. These options became fully vested when Catalyst
became subject to the periodic reporting under the Securities Exchange Act of
1934.
For the fiscal year ended September 30, 2002, options to purchase 57.125 partner
units were granted to Henry Glover at a strike price of approximately $2,890 per
unit. These options, on a converted basis, represent 74,215 shares at a strike
price of $0.86 per share. These options vest equally over a 5 year period and
can only fully vest in the event Catalyst receives an offer to sell
substantially all of its assets which offer Catalyst desires to accept.
Aggregate Option Exercises in Six Months Ended March 31, 2003 and Last Fiscal
Year Ended September 30, 2002
No options to purchase Whitco partnership units were exercised by Dennis
Depenbusch, Henry Glover or any employee during the six months ended March 31,
2003 or the fiscal year ended September 30, 2002.
Compensation of Directors
Whitco Company, LP is a limited partnership and has no directors. Whitco does
have a general partner, Whitco Management, LLC, which is wholly owned by
Catalyst. The general partner receives no additional compensation for serving in
such capacity. Other than the compensation listed above to Dennis Depenbusch and
tax distributions made to partners for their personal income tax liabilities, no
additional compensation has been made to any partner.
Employment Agreements
As of December 31, 2002, Whitco entered into an employment agreement with Henry
Glover, expiring December 31, 2003, providing for him to serve as Whitco's
President and Chief Executive Officer at an annual rate of $150,000. Mr. Glover
is also eligible for medical and dental benefits, as well as such other benefits
as may be offered to executive officers from time to time. Mr. Glover's
employment agreement contains a confidentiality provision as well as a
non-compete clause for one year following his employment with Whitco. We
anticipate entering into an employment agreement with Dennis Depenbusch on terms
to be agreed upon.
Additional Employee Benefits: All employees are provided certain insurance
coverages including health, dental and long term disability. The company
reserves the right to change its benefits plans as it deems necessary or
appropriate.
MANAGEMENT'S
STATEMENT AS TO INDEMNIFICATION
Section 145 of the Delaware General Corporation Law provides for indemnification
of our officers, directors, employees and agents. Under Article XI of our
by-laws, we will indemnify and hold harmless to the fullest extent authorized by
the Delaware General Corporation Law, any of our directors, officers, agents or
employees, against all expense, liability and loss reasonably incurred or
suffered by such person in connection with activities on our behalf. Complete
disclosure of relevant sections of our certificate of incorporation and by-laws
is provided in Part II of the registration statement of which this prospectus
forms a part. This information can also be examined as described in "Further
Information."
Additionally, we have agreed to indemnify Keating Securities, LLC and its
selected dealers, if any, against certain liabilities that may be incurred in
connection with this offering, including certain civil liabilities under the
Securities Act, and, where such indemnification is not available, to contribute
to the payments Keating may be required to make in respect of such liabilities.
Insofar as indemnification for liabilities arising out of the Securities Act may
be permitted to Keating pursuant to the foregoing, and to our directors,
officers or persons controlling us pursuant to the charter, as amended, and our
Bylaws, we have been informed that in the opinion of the SEC such
indemnification is against public policy and is therefore unenforceable.
MARKET FOR OUR COMMON STOCK
Prior to the date of the prospectus, no trading market for our common stock has
existed. There are 12 holders of our common stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following table sets forth all long term debt issued to parties related to
Whitco:
LONG-TERM DEBT:
Long-term secured, subordinated debt for the periods set forth below consisted
of the following:
June 30, 2003 September 30,
(unaudited) 2002
------------- ---------------
Noninterest bearing note payable to Kip Pritchard, Vice President of
Whitco discounted at 6.22% (unamortized discount of $15,148 and $20,207
at June 30, 2003 and September 30, 2002, respectively), payable in
monthly installments of $7,375. Kip Pritchard is a member of the
Pritchard family from which Whitco was purchased in 2000. The note was
issued on June 30, 2000 in connection with such purchase. 167,720 222,175
Note payable to an individual with indirect ownership in Whitco, note was
assigned to a nonrelated limited partnership effective December 27, 2001,
principal due July 31, 2005, interest payable monthly at a fixed rate of
15%. This note was issued on June 30, 2000 in connection with the purchase
of Whitco from the Pritchard family. 700,000 700,000
Note payable to Celestine C. Depenbusch, the mother of Dennis H.
Depenbusch, principal due July 31, 2005, interest payable monthly at a
fixed rate of 15%. This note was issued on June 30, 2000 in connection
with the purchase of the Whitco from the Pritchard family. -- 50,000
Subordinated, unsecured 15% note payable to a partner, Larry Doskocil,
due April 30, 2004. This note was issued on May 1, 2002 in connection
with the buy-out of certain partnership interests of Whitco. -- 250,000
Subordinated, unsecured 15% note payable to a partner, Larry Doskocil,
due April 30, 2007. This note was issued on May 1, 2002 in connection
with the buy-out of certain partnership interests of Whitco. 20,000 20,000
Subordinated, unsecured 15% note payable to Dennis H. Depenbusch, due April
30, 2007. This note was issued on May 1, 2002 in connection with the
buy-out of certain partnership interests of Whitco. -- 76,000
Subordinated, unsecured 15% note payable to a partner, Jacqueline
Middelkamp, due April 30, 2007. This note was issued on May 1, 2002 in
connection with the buy-out of certain partnership interests of Whitco. 50,000 50,000
Subordinated, 15% unsecured note payable to Kip Pritchard, due April 30,
2007. This note was issued on May 1, 2002 in connection with the buy-out
of certain partnership interests of Whitco. 150,000 150,000
------------ --------------
$ 1,087,720 $ 1,518,175
============ ==============
During the nine months ended June 30, 2003 and 2002, the nine months ended
September 30, 2002 and the year ended December 31, 2001, Whitco had $7,875,
$15,525, $27,875 and $0, respectively, of interest expense on notes due to
related parties.
OTHER RELATED PARTY TRANSACTIONS:
During the nine months ended June 30, 2003 and 2002, the nine months ended
September 30, 2002 and for the year ended December 31, 2001, Whitco paid
$49,315, $42,000, $24,000 and $24,000, respectively, for accounting and
administrative services to an entity related through common ownership. The
common ownership ended May 1, 2002.
During the nine months ended June 30, 2003 and 2002, the nine months ended
September 30, 2002 and the year ended December 31, 2001, Whitco had sales of
$262,223, $311,248, $266,580, and $679,527, respectively, to an entity whose
principal owner is the brother of an employee of Whitco. Accounts receivable
from this related entity were $27,743 and $24,894 at June 30, 2003 and 2002,
respectively.
Celestine C. Depenbusch is the mother of Dennis Depenbusch, our CEO and
Chairman. Celestine C. Depenbusch currently owns 472,048 shares of Catalyst
common stock, representing approximately 13.92% of the outstanding common stock.
Celestine Depenbusch exercises 100% voting power and control over all shares
owned by her.
Keating Securities, LLC, a California limited liability company and a registered
broker-dealer, is acting as Placement Agent in this offering. Keating
Investments, LLC, an affiliate of Keating Securities, LLC, was a finder in
connection with the transaction with Whitco and received for that transaction
(a) 200,000 shares of our common stock and (b) a fee of $100,000, payable in 10
monthly payments of $10,000 each, beginning 30 days after our common stock
begins trading on the Over-the-Counter Bulletin Board. This $100,000 fee is
taken into account as a cash requirement on a going-forward basis and we believe
we will have sufficient sales and earnings through the end of our fiscal year
and the term indicated by the investment banking fee to fund this obligation.
For a description of payments to Keating Securities for acting as placement
agent in this offering, please see "Plan of Distribution."
Timothy J. Keating, the son of our former President and current board member,
Kevin R. Keating, is the Managing Member of, and holds a 60% interest in,
Keating Investments, LLC. Keating Investments will advise and assist us in
identifying and/or evaluating various financial alternatives that may be
available, including without limitation, additional public or private sales of
equity or debt securities, or such other form of financial transaction Keating
believes may be of possible interest. Keating will render such other financial
advisory and investment banking services as may from time to time be agreed upon
by Keating and Whitco.
While NASD Rule 2460 specifically prohibits broker-dealers such as Keating from
accepting any payment or other consideration, directly or indirectly, from an
issuer of a security, or any affiliate or promoter thereof, for publishing a
quotation, acting as market maker in a security, or submitting an application in
connection
therewith, Keating represents that it maintains full compliance with this rule
at all times, and the services to be provided are "bona fide services" as
permitted by Rule 2460. Compensation paid to Keating is not intended to be, and
should not be construed to be, for the provision of any market-making services.
On August 6, 2003, Keating Reverse Merger Fund, LLC, a Delaware limited
liability company and an affiliate of Keating Investments, LLC and Keating
Securities, LLC ("KRMF"), loaned $250,000 to Whitco Company, L.L.P., receiving a
$250,000 unsecured promissory note from Whitco and a five year common stock
purchase warrant to purchase up to 125,000 shares of our common stock for $2.00
per share. It is expected that a portion of the proceeds raised in this offering
will be used to repay this promissory note, which matures on February 6, 2004.
Keating Investments is the managing member of KRMF. Timothy J. Keating owns
approximately 60% of Keating Investments and also individually owns, as of the
date hereof, 5% of KRMF. Kevin R. Keating has no ownership interest in Keating
Investments, Keating Securities or Keating Reverse Merger Fund.
PRINCIPAL STOCKHOLDERS
The table below sets forth certain information regarding the beneficial
ownership of our common stock as of the date of this prospectus, including:
+ each person who is known by us to own beneficially more than 5% of our
outstanding common stock;
+ each of our officers and directors; and
+ all of our directors and officers as a group.
Amount and Percentage
Nature of of Shares
Beneficial Beneficially
Name of Stockholder Ownership Owned
-------------------- ----------- ------------
Kevin R. Keating (1) ....................... 90,000 2.65%
Dennis H. Depenbusch (2) ................... 1,610,974(3) 47.50%
Henry Glover(4) ............................ 96,951(5) 2.78%
Mary Titus (6) ............................. 0 0
Tracy B. Taylor (7) ........................ 0 0
Keating Investments, LLC ................... 200,000 5.90%
Larry Doskocil Trust (8) ................... 685,004 20.20%
Celestine Depenbusch (9) ................... 472,048 13.92%
James "Kip" Pritchard (10) ................. 350,125 9.35%
All executive officers and
directors as a group ....................... 1,797,925 53.0%
-----------
(1) Mr. Keating is a member of our Board of Directors. Excludes 6,667 shares
which are to be issued at the first closing of the sale of shares offered
hereby.
(2) Mr. Depenbusch is our chief executive officer and chairman of our Board of
Directors.
(3) Represents 3,350 shares of our common stock owned by Mr. Depenbusch and
1,607,624 shares owned by the Dennis H. Depenbusch Revocable Trust, an
entity of which Mr. Depenbusch is a co-trustee.
(4) Mr. Glover is President and a member of our Board of Directors.
(5) Represents 96,951 shares of common stock issuable upon exercise of
currently vested options granted to Mr. Glover.
(6) Ms. Titus is a member of our Board of Directors. Excludes 6,667 shares
which are to be issued at the first closing of the sale of shares offered
hereby.
(7) Mr. Taylor is a member of our Board of Directors. Excludes 6,667 shares
which are to be issued at the first closing of the sale of shares offered
hereby.
(8) Larry Doskocil is the sole trustee of the Larry Doskocil Trust.
(9) Celestine Depenbusch is the mother of Dennis H. Depenbusch. Mr. Depenbusch
exercises no voting or other control over Celestine Depenbusch's shares.
(10) Represents 350,125 shares of common stock issuable upon exercise of
currently vested options granted to Mr. Pritchard.
DESCRIPTION OF SECURITIES
General
We have authorized 40,000,000 shares of common stock, par value $.01 per share,
and 10,000,000 shares of preferred stock, par value $.01 per share, whose rights
and designation(s) have not yet been established. We have 3,391,368 shares of
common stock outstanding as of the date of this prospectus. We currently have no
outstanding shares of preferred stock.
Common Stock
Each share of common stock entitles its holder to one vote upon all matters on
which holders of common stock are entitled to vote under applicable law or
otherwise. Stockholders are not permitted to vote their shares cumulatively.
Accordingly, the holders of more than 50% of the issued and outstanding common
stock can elect all of our directors. Holders of common stock have no preemptive
or other subscription rights, conversion rights, redemption or sinking fund
provisions. In the event of our liquidation, dissolution or winding up, whether
voluntary or involuntary, each share of common stock will be entitled to share
ratably in any assets available for distribution to holders of our equity
securities after satisfaction of all liabilities and after providing for each
class of stock, if any, having preference over the common stock.
The rights of the holders of common stock are subject to any rights that may be
fixed for holders of preferred stock, when and if any preferred stock is issued.
Preferred Stock
Our Board of Directors is authorized by our certificate of incorporation to
designate and issue up to 10,000,000 shares of one or more series of preferred
stock. No shares of preferred stock have been authorized or designated for
future issuance by our board as of the date of this prospectus. We have no
present plans to issue any such shares.
In the event our board of directors authorizes, designates and issues shares of
preferred stock, it may exercise its discretion in establishing the terms of
such preferred stock. In the exercise of such discretion, our board may
determine the voting rights, if any, of the series of preferred stock being
issued, which could include the right to vote separately or as a single class
with our common stock and/or other series of preferred stock; to have more or
less voting power per share than that possessed by our common stock or other
series of preferred stock; and to vote on certain specified matters presented to
the shareholders or on all of such matters or upon the occurrence of any
specified event or condition. On our liquidation, dissolution or winding up, the
holders of preferred stock may be entitled to receive preferential cash
distributions fixed by our board before the holders of our common stock are
entitled to receive anything. Preferred stock authorized by our board could be
redeemable or convertible into shares of any other class or series of our
capital stock.
The issuance of preferred stock by our board of directors could adversely affect
the rights of holders of common stock by, among other things, establishing
preferential dividends, liquidation rights or voting powers. The issuance of
preferred stock could be used to discourage or prevent efforts to acquire
control of Wentworth through the acquisition of shares of Common Stock, even if
a change in control were in our stockholders' interest.
We will not offer, sell or issue shares of any class of our preferred stock to
any of our directors or executive officers, nor any affiliate of such persons,
except:
o if the offer, sale or issuance is on the same terms as we offer such
securities to all other existing stockholders or to new stockholders, or
o if the offer, sale or issuance is approved by a majority of our independent
directors who do not have an interest in the transaction and who have
access, at our expense, to our or other independent counsel.
State Blue Sky Information
We offered the common stock for sale in the IPO only in the State of Colorado.
We believe that such shares, upon release from escrow in accordance with SEC
Rule 419 and once they become transferable, will be eligible for sale on a
secondary market basis in other states based upon the registration of the
securities in such states, a listing in Standard and Poor's or Moody's manuals,
or the availability of an applicable exemption from the state's registration
requirements, subject, in each case, to the exercise of the broad discretion and
powers of the securities commission or other administrative bodies having
jurisdiction in each state, and any changes in statutes and regulations which
may occur after the date of this reconfirmation prospectus.
Transfer Agent
Corporate Stock Transfer of Denver, Colorado is the transfer agent for the
Common Stock.
EXPERTS
Our audited financial statements as of December 31, 2002 and for the year then
ended included in this prospectus, and the registration statement of which this
prospectus is a part, have been included herein in reliance on the report of
Hein + Associates LLP, independent accountants, given on the authority of such
firm as an expert in accounting and auditing.
Our audited balance sheet as of December 31, 2001 not included in this
prospectus and the related statements of operations, stockholders equity and
cash flow for the period from inception (March 7, 2001) to December 31, 2001
included in this prospectus, and the registration statement of which this
prospectus is a part, have been included herein in reliance on the report of
Goldstein Golub Kessler LLP, independent accountants, given on the authority of
such firm as an expert in accounting and auditing.
Whitco's audited financial statements as of September 30, 2002 and for the nine
months then ended included in this prospectus, and the registration statement of
which this prospectus is a part, have been included herein in reliance on the
report of Hein + Associates LLP, independent accountants, given on the authority
of such firm as an expert in accounting and auditing.
Whitco's audited statements of operations, partners' equity and cash flows for
the year ended December 31, 2001 included in this prospectus, and the
registration statement of which this prospectus is a part, have been included
herein in reliance on the report of Grant Thornton LLP, independent accountants,
given on the authority of such firm as an expert in accounting and auditing.
LEGAL MATTERS
Feldman Weinstein LLP, New York, New York, will pass upon the validity of the
shares of common stock offered by the prospectus for us.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2, including exhibits and schedules thereto, under the
Securities Act with respect to the securities sold in our IPO, and a
reconfirmation prospectus on Form SB-2 with respect to the consummation of the
transaction with Whitco. We have also filed this registration statement and
prospectus on Form SB-2. This prospectus, which constitutes a part of the
registration statement, does not contain all the information set forth in the
registration statement and the exhibits filed with it. For further information
with respect to us and the securities sold in our IPO, reference is made to the
registration statement and to the exhibits filed therewith. Statements contained
in this prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. In each instance, we refer
you to the copy of the contracts, agreements and other documents filed as
exhibits to the registration statement, and these statements are deemed
qualified in their entirety by reference to the contract or document.
You may inspect, without charge, all or any portion of the registration
statement or any reports, statements or other information we file with the SEC
at the SEC's public reference room at Room 1024, Judiciary Plaza, 450 Fifth
Street, NW, Washington, D.C. 20549 and at the regional offices of the SEC
located at 233 Broadway, New York, New York 10007 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of these documents
may also be obtained from the SEC's Public Reference Room at 450 Fifth Street,
NW, Room 1024, Washington, D.C. 20549 upon payment of the prescribed fees. You
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330.
In addition, registration statements and other filings with the SEC are publicly
available through its Electronic Data Gathering, Analysis and Retrieval, or
EDGAR, system, located at www.sec.gov. The registration statement, including all
exhibits and schedules and amendments, has been filed with the commission
through the EDGAR system.
We are subject to the reporting requirements of the Exchange Act and, in
accordance with these requirements, we have and will continue to file reports,
proxy statements and other information with the SEC. We intend to furnish our
stockholders with annual reports containing audited financial statements and
other periodic reports as we deem appropriate or as may be required by law.
INDEX TO FINANCIAL STATEMENTS
CATALYST LIGHTING GROUP, INC. PAGE
----------------------------- ----
INDEPENDENT AUDITORS' REPORTS...............................................F-2
BALANCE SHEETS - June 30, 2003 (unaudited) and December 31, 2002............F-4
STATEMENTS OF OPERATIONS - For the Six Months Ended June 30, 2003
and 2002 (unaudited), for the Year Ended December 31, 2002, for
the Period from March 7, 2001 (Date of Inception) to
December 31, 2001 and for the Period from March 7, 2001 (Date of
Inception) to June 30, 2003 (unaudited).................................F-5
STATEMENTS OF CHANGES OF STOCKHOLDERS' EQUITY-For the Period from
March 7, 2001 (Date of Inception) to December 31, 2001, for the
Year Ended December 31, 2002 and for the Six Months Ended June 30,
2003 (unaudited)........................................................F-6
STATEMENTS OF CASH FLOWS - For the Six Months Ended June 30, 2003 and
2002 (unaudited), for the Year Ended December 31, 2002, for the
Period from March 7, 2001 (Date of Inception) to December 31, 2001
and for the Period from March 7, 2001 (Date of Inception) to June 30,
2003 (unaudited)........................................................F-7
NOTES TO FINANCIAL STATEMENTS...............................................F-8
WHITCO COMPANY
--------------
INDEPENDENT AUDITOR'S REPORT...............................................F-13
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.........................F-14
BALANCE SHEETS - June 30, 2003 (unaudited) and September 30, 2002..........F-15
STATEMENTS OF OPERATIONS - For the Nine Months Ended June 30, 2003
and 2002 (unaudited) Three Months Ended December 31, 2002
(unaudited), Nine Months Ended September 30, 2002 and Year Ended
December 31, 2001......................................................F-16
STATEMENTS OF PARTNERS' EQUITY - For the Year Ended December 31, 2001,
For the Nine Months Ended September 30, 2002, and For the Nine
Months Ended June 30, 2003 (unaudited).................................F-17
STATEMENTS OF CASH FLOWS - For the Nine Months Ended June 30, 2003
and 2002 (unaudited), Nine Months Ended September 30, 2002 and Year
Ended December 31, 2001................................................F-18
NOTES TO FINANCIAL STATEMENTS..............................................F-19
PRO FORMA FINANCIAL INFORMATION
-------------------------------
INTRODUCTION...............................................................F-31
PRO FORMA COMBINING, CONDENSED BALANCE SHEET (unaudited)...................F-32
PRO FORMA COMBINING, CONDENSED STATEMENT OF OPERATIONS (unaudited).........F-33
PRO FORMA NOTES TO COMBINING, CONDENSED FINANCIAL INFORMATION..............F-35
F-1
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Catalyst Lighting Group, Inc.
Denver, Colorado
We have audited the accompanying balance sheet of Catalyst Lighting Group, Inc.
(formerly Wentworth III, Inc.) (a development stage company) (the "Company") as
of December 31, 2002, and the related statements of operations, stockholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Catalyst Lighting Group, Inc.
as of December 31, 2002 and the results of its operations and its cash flows for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America.
As discussed in Note 2, on August 27, 2003, the Company merged with Whitco
Company, LLP, whereby Whitco Company, LLP was considered the acquiring company.
HEIN + ASSOCIATES LLP
Denver, Colorado
February 5, 2003, except for Note 2, for which the date is August 27, 2003.
F-2
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Catalyst Lighting Group, Inc.
We have audited the accompanying balance sheet of Catalyst Lighting Group, Inc.
(formerly Wentworth III, Inc.) (a development stage company) as of December 31,
2001 (not presented herein), and the related statements of operations,
stockholders' equity and cash flows for the period from March 7, 2001 (date of
inception) to December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Catalyst Lighting Group, Inc.
as of December 31, 2001 and the results of its operations, and its cash flows
for the period from March 7, 2001 (date of inception) to December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in the notes to the
financial statements, the Company has suffered operating losses since its
inception and has a working capital deficiency that raise substantial doubt
about its ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Subsequent to the original issuance of our report, the Company changed its name
from Wentworth III, Inc. to Catalyst Lighting Group, Inc.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
May 24, 2002
F-3
CATALYST LIGHTING GROUP, INC.
(FORMERLY WENTWORTH III, INC.)
(A Development Stage Company)
BALANCE SHEETS
JUNE 30, DECEMBER 31,
2003 2002
-------- --------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 376 $ 2,125
-------- --------
Total current assets 376 2,125
CASH-RESTRICTED 45,000 45,000
DEFERRED TAX ASSET, net of valuation allowance -- --
-------- --------
TOTAL ASSETS $ 45,376 $ 47,125
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,023 $ --
Accrued expenses 36,000 38,000
Due to officer 1,035 1,035
-------- --------
Total current liabilities 44,058 39,035
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value; authorized 10,000,000 shares, none issued -- --
Common stock - $.01 par value;authorized 40,000,000 shares, 200,000
shares
issued and outstanding 2,000 2,000
Additional paid-in capital 25,937 25,937
Deficit accumulated during the development stage (26,619) (19,847)
-------- --------
Total stockholders' equity 1,318 8,090
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 45,376 $ 47,125
======== ========
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-4
CATALYST LIGHTING GROUP, INC.
(FORMERLY WENTWORTH III, INC.)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
FOR THE FOR THE
PERIOD FROM PERIOD FROM
FOR THE FOR THE MARCH 7, 2001 MARCH 7, 2001
SIX MONTHS SIX MONTHS FOR THE (DATE OF (DATE OF
ENDED ENDED YEAR ENDED INCEPTION) TO INCEPTION) TO
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30,
2003 2002 2002 2001 2003
------------- ------------- -------------- --------------- ---------------
(unaudited) (unaudited) (unaudited)
INTEREST INCOME $ 1 $ 23 $ 25 $ 20 $ 46
OPERATING EXPENSES:
Professional fees 3,833 1,374 17,753 -- 21,586
Other general and administrative expense 2,940 770 797 1,342 5,079
----------- ----------- ----------- ------------- ------------
Total operating expenses 6,773 2,144 18,550 1,342 26,665
----------- ----------- ----------- ------------- ------------
NET LOSS (6,772) (2,121) (18,525) (1,322) (26,619)
----------- ----------- ----------- ------------- ------------
NET LOSS PER COMMON SHARE $ (0.03) $ (0.01) $ (0.01) $ (0.01)
=========== =========== =========== =============
WEIGHTED-AVERAGE NUMBER OF SHARES
OUTSTANDING 200,000 150,000 200,000 150,000
=========== =========== =========== =============
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-5
CATALYST LIGHTING GROUP, INC.
(FORMERLY WENTWORTH III, INC.)
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM MARCH 7, 2001 (DATE OF INCEPTION) TO DECEMBER 31, 2001,
FOR THE YEAR ENDED DECEMBER 31, 2002 AND FOR THE
SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
COMMON STOCK ADDITIONAL DEFICIT DURING
------------------- PAID-IN THE DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL STAGE EQUITY
-------- -------- --------- -------- --------
Issuance of common stock for cash at $.05 per share 150,000 $ 1,500 $ 6,000 $ -- $ 7,500
Net loss for the period from March 7, 2001 (date of
inception) to December 31, 2001 -- -- -- (1,322) (1,322)
-------- -------- -------- -------- --------
BALANCE, December 31, 2001 150,000 1,500 6,000 (1,322) 6,178
Net proceeds from sale of common stock for cash
received in public offering at $1.00 per share 50,000 500 19,937 -- 20,437
Net loss for the year ended December 31, 2002 -- -- -- (18,525) (18,525)
-------- -------- -------- -------- --------
BALANCE, December 31, 2002 200,000 2,000 25,937 (19,847) 8,090
Net loss for the six months ended June 30, 2003
(unaudited) -- -- -- (6,772) (6,772)
-------- -------- -------- -------- --------
BALANCE, June 30, 2003 (unaudited) 200,000 $ 2,000 $ 25,937 $(26,619) $ 1,318
======== ======== ======== ======== ========
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-6
CATALYST LIGHTING GROUP, INC.
(FORMERLY WENTWORTH III, INC.)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
FOR THE
PERIOD FROM FOR THE
MARCH 7, PERIOD FROM
FOR THE FOR THE 2001 MARCH 7, 2001
SIX MONTHS SIX MONTHS FOR THE (DATE OF (DATE OF
ENDED ENDED YEAR ENDED INCEPTION) INCEPTION) TO
JUNE 30, JUNE 30, DECEMBER 31, TO DECEMBER JUNE 30,
2003 2002 2002 31, 2001 2003
------------- ------------- ------------- ------------ --------------
(unaudited) (unaudited) (unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (6,772) $ (2,121) $ (18,525) $ (1,322) $ (26,619)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Changes in operating assets
and liabilities:
Increase in restricted
cash -- -- (45,000) -- (45,000)
Increase in accounts
payable 7,023 4,690 -- -- 7,023
Increase (decrease) in
accrued expenses (2,000) (10,337) 7,595 842 6,437
Increase in due to
officer -- 1,000 1,035 -- 1,035
------------- ------------- ------------- ------------ --------------
Net cash provided by
(used in) operating
activities (1,749) (6,768) (54,895) (480) (57,124)
CASH PROVIDED BY FINANCING
ACTIVITY, proceeds from the
issuance of common stock -- -- 50,000 7,500 57,500
------------- ------------- ------------- ------------ --------------
INCREASE (DECREASE) IN CASH (1,749) (6,768) (4,895) 7,020 376
CASH, at beginning of period 2,125 7,020 7,020 -- --
------------- ------------- ------------- ------------ --------------
CASH, at end of period $ 376 $ 252 $ 2,125 $ 7,020 $ 376
============= ============= ============= ============ ==============
SUPPLEMENTAL SCHEDULE OF NON-CASH
FINANCING ACTIVITY:
Expense accrued for offering
costs $ -- $ 23,369 $ 18,419 $ 11,144 $ 29,563
============= ============= ============= ============ ==============
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-7
CATALYST LIGHTING GROUP, INC.
(FORMERLY WENTWORTH III, INC.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 2002 is unaudited.)
1. ORGANIZATION AND OPERATIONS:
Catalyst Lighting Group, Inc. (formerly Wentworth III, Inc.) (the
"Company") was incorporated in the State of Delaware on March 7, 2001
for the purpose of raising capital that is intended to be used in
connection with a merger, acquisition or other business combination with
an operating business. On October 9, 2001, the Company issued 150,000
shares of $.01 par value common stock for $.05 per share, a total of
$7,500. During 2001, the Company filed a registration statement on Form
SB-2, under SEC Rule 419, which was declared effective by the Securities
and Exchange Commission on August 6, 2002. Under this registration
statement on November 4, 2002, the Company sold 50,000 shares of $.01
par value common stock in a public offering for $1.00 per share for
gross proceeds of $50,000. The Company incurred $29,563 in expenses of
the offering.
The Company is a development stage company. All activities of the
Company through August 27, 2003 relate to its formation, its public
offering and subsequent public filings and to finding an acquisition
target with which to consummate a business combination. On August 27,
2003, the Company completed a merger with Whitco Company, LLP ("Whitco")
(see Note 2).
The proceeds of the initial public offering as well as the related
securities purchased were placed in an escrow account where they
remained until the consummation of the business combination with Whitco
as required by the Securities and Exchange Commission Rule 419. The
Company withdrew only 10% of the funds as working capital in order to
seek acquisition opportunities or for other corporate purposes. The
remaining $45,000 has been shown as cash in escrow in the accompanying
balance sheet.
The financial instruments, which potentially subject the Company to
concentration of credit risk, consist of cash. The Company maintains
cash in an account with a financial institution in an amount which, at
times, may be in excess of the FDIC insured limit. The Company has not
experienced any losses on such account and does not believe it is
exposed to any significant risk with respect to cash.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
the use of estimates by management. Actual results could differ from
these estimates.
The Company does not believe that any recently issued but
not-yet-effective accounting standards will have a material effect on
the Company's financial position, results of operations or cash flows.
F-8
CATALYST LIGHTING GROUP, INC.
(FORMERLY WENTWORTH III, INC.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 2002 is unaudited.)
2. REVERSE MERGER WITH WHITCO AND OFFERING:
Effective August 27, 2003, the Company merged with Whitco Company, LLP
("Whitco"), a privately held Texas-based manufacturer and marketer of
steel outdoor lighting pole structures. Whitco's management and board
assumed significant majority control of the Company through a merger
structure whereby Whitco became a wholly-owned subsidiary of Wentworth.
For financial statement purposes, this transaction will be considered a
reverse merger, whereby Whitco will be considered the acquiring company.
3,191,368 shares of common stock were issued to the partners of Whitco
in the merger.
The Company is in the process of filing a registration statement with
the Securities and Exchange Commission for the sale of up to 1,200,000
shares of common stock at $2.50 per share (the Offering). Keating
Securities, LLC ("KS") is the broker-dealer selling the shares being
offered by the Company. In addition to the 200,000 shares of common
stock already received by KS, KS will receive (a) an investment banking
fee of $100,000, which is due in 10 monthly payments of $10,000 each
beginning 30 days after the Company's common stock begins trading on the
Over-the-Counter Bulletin Board, (b) a 10% cash placement fee and 3%
expense allowance of the securities placed by KS in the offering. In
addition, the Company shall issue five-year common stock purchase
warrants entitling KS to purchase up to 10% of the securities sold by
KS, at an exercise price of 100% of the per share price of the offering.
Keating Investments, LLC ("KI") is a Colorado state registered
investment advisor and owns 89% of KS, a registered broker-dealer. In
connection with the reverse merger, KI received an investment banking
fee, part of which has been paid through the issuance of 200,000 shares
of Catalyst Lighting Group, Inc.'s common stock. Timothy J. Keating,
the son of Kevin R. Keating, the Company's former President, is the
Managing Member of, and holds a 60% interest in KI. There is currently
no signed agreement between KI and the Company. However, KI has been
engaged by and is representing Whitco Company LLP as its investment
banker. Given the limited cash resources of the Company, management of
the Company anticipates that any future investment banking fees payable
to KS will be paid either through the issuance of additional equity of
the Company or through the cash resources of Whitco Company LLP or a
combination of both.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Deferred Offering Costs - Deferred offering costs, which were being
incurred in anticipation of the Company filing a Rule 419 registration
statement, were deferred until the sale of common shares. On November 4,
2002, when the offering closed, these costs were charged to additional
paid in capital.
F-9
CATALYST LIGHTING GROUP, INC.
(FORMERLY WENTWORTH III, INC.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 2002 is unaudited.)
Income Taxes - The Company accounts for income taxes in accordance with
the Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," which requires the recognition of deferred tax
liabilities and assets at currently enacted tax rates for the expected
future tax consequences of events that have been included in the
financial statements or tax returns. A valuation allowance is recognized
to reduce the net deferred tax asset to an amount that is more likely
than not to be realized. The tax provision shown on the accompanying
statement of operations is zero since the deferred tax asset generated
from the net operating loss is offset in its entirety by a valuation
allowance. State minimum taxes are expensed as incurred.
Cash and Cash Equivalents, and Restricted Cash - Cash and cash
equivalents, if any, include all highly liquid debt instruments with an
original maturity of three months or less at the date of purchase.
Restricted cash represents the proceeds of the Rule 419 common stock
offering, which are limited as to their use pursuant to this Rule (see
Note 1).
Fair Value of Financial Instruments - Cash and current liabilities are
recorded in the financial statements at cost, which approximates fair
market value because of the short-term maturity of those instruments.
Net Income (Loss) Per Share - Basic earnings per share (EPS) is
calculated by dividing the income or loss available to common
shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock. The Company currently has no
dilutive securities and as such, basic and diluted earnings per share
are the same for all periods presented.
Comprehensive Income (Loss) - Comprehensive income is defined as all
changes in stockholders' equity (deficit), exclusive of transactions
with owners, such as capital investments. Comprehensive income includes
net income or loss, changes in certain assets and liabilities that are
reported directly in equity such as translation adjustments on
investments in foreign subsidiaries and unrealized gains (losses) on
available-for-sale securities. During the year ended December 31, 2002
and for the period from March 7, 2001 (inception) to December 31, 2001,
the Company's comprehensive loss was the same as its net loss.
Interim Financial Information - The accompanying interim financial
information as of June 30, 2003 and for the six months ended June 30,
2003 and 2002 has been taken from the Company's books and records
without audit. However, in the opinion of management, such information
includes all adjustments (consisting only of normal recurring accruals)
necessary to fairly present the financial position as of June 30, 2003
and results of operations of the Company for the six months ended June
30, 2003 and 2002 and the period from inception to June 30, 2003.
F-10
CATALYST LIGHTING GROUP, INC.
(FORMERLY WENTWORTH III, INC.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 2002 is unaudited.)
4. STOCKHOLDERS' EQUITY:
The Company's Certificate of Incorporation authorizes the issuance of
50,000,000 shares of stock. They are divided into 10,000,000 shares of
preferred stock and 40,000,000 shares of common stock. At June 30, 2003,
none of the preferred stock has been issued. However, such preferred
shares may later be issued in such series with whatever preferences as
may be determined by the Board of Directors.
During the year ended December 31, 2002, the Company completed the sale
of 50,000 shares of common stock at $1.00 in an initial public offering
(IPO). Offering costs associated with the IPO totaled $29,563. Prior to
the IPO, the Company sold 150,000 shares of common stock for $7,500 in
a private placement. At December 31, 2002, 200,000 shares of the common
stock have been issued. In addition, the Company issued 3,191,368
shares in connection with a Whitco merger, including 200,000 shares to
KI.
5. INCOME TAXES:
The Company has a net operating loss carryforward of approximately
$20,000 available to offset taxable income through the years 2021 and
2022.
The Company recorded a deferred income tax asset for the tax effect of
net operating loss carryforwards and temporary differences, aggregating
$7,371, against which the Company has recorded a full valuation
allowance in recognition of the uncertainty regarding the ultimate
amount of income tax benefits to be derived. The change in the valuation
allowance for the period ended December 31, 2001 to December 31, 2002 is
$6,922.
December 31, 2002
-----------------
Start up costs $ 123
Net operating loss carryforwards 7,248
Valuation allowance (7,371)
-------------
$ --
=============
F-11
CATALYST LIGHTING GROUP, INC.
(FORMERLY WENTWORTH III, INC.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 2002 is unaudited.)
The difference between income taxes computed at the statutory federal
rate of 34% and the provision for income taxes relates to the following:
Percent of
Pretax Amount
-------------
Provision at federal statutory rate 34%
Increase in valuation allowance (34)
---
0%
===
F-12
INDEPENDENT AUDITOR'S REPORT
To the Partners
Whitco Company, LLP
Hutchinson, Kansas
We have audited the accompanying balance sheet of Whitco Company, LLP as of
September 30, 2002, and the related statements of operations, partners' equity,
and cash flows for the nine months then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Whitco Company, LLP as of
September 30, 2002 and the results of its operations and its cash flows for the
nine months then ended, in conformity with accounting principles generally
accepted in the United States of America.
HEIN + ASSOCIATES LLP
Denver, Colorado
December 20, 2002
F-13
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Partners
Whitco Company, LLP
We have audited the accompanying statements of operations, partners' equity and
cash flows of Whitco Company, LLP for the year ended December 31, 2001. These
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all material
respects, the results of operations and cash flows of Whitco Company, LLP for
the year ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America.
/s/ Grant Thornton LLP
Wichita, Kansas
January 31, 2002
F-14
WHITCO COMPANY, LLP
BALANCE SHEETS
JUNE 30, SEPTEMBER 30,
2003 2002
---------- ----------
(unaudited)
ASSETS
CURRENT ASSETS:
Trade receivables, less allowance for doubtful accounts of $48,456
(unaudited) and $54,442 $2,640,753 $2,280,109
Inventories 1,321,935 852,033
Prepaid expenses and other 25,574 20,029
---------- ----------
Total current assets 3,988,262 3,152,171
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $50,638 (unaudited)
and $51,991 114,074 133,875
OTHER ASSETS:
Goodwill, net of accumulated amortization of $330,151 (unaudited) and $330,151 2,971,362 2,971,362
Other 15,793 17,810
---------- ----------
Total other assets 2,987,155 2,989,172
---------- ----------
$7,089,491 $6,275,218
========== ==========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Revolving note payable $1,673,884 $1,087,025
Current maturities of long-term debt 490,726 257,646
Accounts payable 1,977,446 1,250,935
Other accrued liabilities 693,186 703,543
---------- ----------
Total current liabilities 4,835,242 3,299,149
---------- ----------
LONG-TERM DEBT, less current maturities:
Related party 70,000 446,000
Other 1,140,341 1,392,571
---------- ----------
Total long-term debt 1,210,341 1,838,571
PARTNERS' EQUITY 1,043,908 1,137,498
---------- ----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $7,089,491 $6,275,218
========== ==========
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-15
WHITCO COMPANY, LLP
STATEMENTS OF OPERATIONS
NINE
NINE MONTHS NINE MONTHS THREE MONTHS MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
2003 2002 2002 2002 2001
------------ ------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited)
SALES $ 10,644,295 $ 9,600,503 $ 3,282,406 $ 10,243,036 $ 11,784,438
COST OF SALES 7,277,750 6,543,698 2,172,735 7,169,790 7,887,188
------------ ------------ ------------ ------------ ------------
GROSS MARGIN ON SALES 3,366,545 3,056,805 1,109,671 3,073,246 3,897,250
OTHER OPERATING COSTS AND EXPENSES:
General, selling and administrative
expenses 3,614,158 2,633,603 1,104,146 2,700,835 3,053,662
Amortization of goodwill -- -- -- -- 229,797
------------ ------------ ------------ ------------ ------------
3,614,158 2,633,603 1,104,146 2,700,835 3,283,459
------------ ------------ ------------ ------------ ------------
INCOME FROM OPERATIONS (247,613) 423,202 5,525 372,411 613,791
OTHER EXPENSE:
Interest expense 220,977 209,099 71,519 224,677 292,138
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (468,590) $ 214,103 $ (65,994) $ 147,734 $ 321,653
============ ============ ============ ============ ============
PRO FORMA INCOME TAXES AND NET INCOME
(LOSS): (unaudited)
INCOME (LOSS) BEFORE PRO FORMA INCOME TAXES $ (468,590) $ 214,103 $ (65,994) $ 147,734 $ 321,653
PRO FORMA INCOME TAXES 169,250 (82,794) 22,838 (58,062) (123,122)
------------ ------------ ------------ ------------ ------------
PRO FORMA NET INCOME (LOSS) $ (299,340) $ 131,309 $ (43,156) $ 89,672 $ 198,531
============ ============ ============ ============ ============
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-16
WHITCO COMPANY, LLP
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2001,
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002, AND
FOR THE NINE MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
PARTNERS' RETAINED PARTNERS'
UNITS CONTRIBUTIONS EARNINGS EQUITY
----------- ------------- ------------ ------------
BALANCE, January 1, 2001 1,200 $ 1,200,000 $ 306,711 $ 1,506,711
Partners' distributions -- -- (293,600) (293,600)
Net income -- -- 321,653 321,653
----------- ----------- ----------- -----------
BALANCE, December 31, 2001 1,200 1,200,000 334,764 1,534,764
Sale of partnership interest 436 655,000 -- 655,000
Redemption of partners' interest (800) (1,200,000) -- (1,200,000)
Net income -- -- 147,734 147,734
----------- ----------- ----------- -----------
BALANCE, September 30, 2002 836 655,000 482,498 1,137,498
Retirement of long term debt by conversion
to partnership interest (unaudited) 57 375,000 -- 375,000
Net loss (unaudited) -- -- (468,590) (468,590)
----------- ----------- ----------- -----------
BALANCE, June 30, 2003 (unaudited) 893 $ 1,030,000 $ 13,908 $ 1,043,908
=========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-17
WHITCO COMPANY, LLP
STATEMENTS OF CASH FLOWS
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED YEAR ENDED
JUNE 30, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2003 2002 2002 2001
----------- ----------- ----------- -----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (468,590) $ 214,103 $ 147,734 $ 321,653
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Loss on sale of property and equipment 17,768
Depreciation and amortization 23,896 77,562 31,182 249,415
Allowance for bad debt -- -- 32,406 9,048
Change in operating assets and liabilities:
Trade receivables (360,643) (1,003,612) (813,817) (2,989)
Inventories (469,902) 387,721 34,068 (190,183)
Prepaid expenses and other (5,545) 8,403 21,938 (14,849)
Accounts payable 726,510 (116,846) 720,595 (219,257)
Other accrued liabilities (10,357) 176,496 223,004 174,631
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities (546,863) (256,173) 397,110 327,469
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (19,846) (31,930) (74,307) (26,934)
----------- ----------- ----------- -----------
Net cash used in investing activities (19,846) (31,930) (74,307) (26,934)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in revolving note payable 586,859 511,791 (99,276) 213,565
Proceeds from issuance of long-term debt -- -- 546,000 --
Payments on short-term and long-term notes payable (20,150) (223,685) (224,527) (228,644)
Sale of partnership interest -- -- 655,000 --
Partners' distributions -- -- -- (293,600)
Redemption of partners' interest -- -- (1,200,000) --
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities 566,709 288,106 (322,803) (308,679)
----------- ----------- ----------- -----------
NET CHANGE IN CASH -- 3 -- (8,144)
CASH, at beginning of period -- (3) -- 8,144
----------- ----------- ----------- -----------
CASH, at end of period $ -- $ -- $ -- $ --
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 229,133 $ 211,863 $ 240,692 $ 290,089
=========== =========== =========== ===========
SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Conversion of long-term debt to partnership interest $ 375,000 $ -- $ -- $ --
=========== =========== =========== ===========
Conversion of partnership interest to long-term debt $ -- $ 545,000 $ -- $ --
=========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-18
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
1. SUMMARY OF ACCOUNTING POLICIES:
Nature of Operations - Whitco Company, LLP (the Company) was formed as a
Texas limited liability partnership on June 27, 2000. The Company,
located in Fort Worth, Texas, sells sports and area lighting poles to
distributors throughout the United States of America.
Pursuant to a redemption in May 2002, the Company purchased 800
partnership units for $1,200,000 (i.e., $1,500 per unit) from two of the
three members. To finance the redemption of these partnership units, the
Company issued 436 partnership units for $655,000 (at $1,500 per unit)
and $545,000 in notes payable to the then remaining member, persons
related to him and a limited number of new investors. The change in
ownership, however, did not result in a change in control or management,
therefore all transactions were recorded at cost.
Change in Year End - Effective January 1, 2002, the Company changed its
year end from December 31 to September 30.
Inventories - Inventories are stated at the lower of cost or market,
determined under the first-in, first-out method.
Property and Equipment - Property and equipment are stated at cost.
Depreciation and amortization of property and equipment is provided
using the modified straight-line method over the following estimated
useful lives:
Vehicles and office furniture and equipment 5 years
Depreciation expense for the nine months ended June 30, 2003 and 2002,
for the nine months ended September 30, 2002 and for the year ended
December 31, 2001 was $21,876, $15,265, $23,910 and $5,461,
respectively. Maintenance, repairs and renewals which neither materially
add to the value of property and equipment nor appreciably prolong its
life are charged to operations as incurred. Gains or losses on disposals
of property and equipment are included in income.
Impairment of Long-Lived Assets - Management of the Company assesses
impairment whenever events or changes in circumstances indicate that the
carrying amount of a long-lived asset may not be recoverable. If the net
carrying value exceeds the net cash flows, then impairment will be
recognized to reduce the carrying value to the estimated fair value.
F-19
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
Acquisition and Goodwill - On June 30, 2000, the Company acquired the
operating assets and liabilities of Whitco Sales, Inc. The purchase
price was allocated to the assets acquired and liabilities assumed based
on their estimated fair value. The fair value of assets acquired and
liabilities assumed was as follows:
Receivables $ 1,560,576
Inventories 585,901
Property and equipment 64,000
Accounts payable (633,922)
Other accrued liabilities (220,931)
Goodwill 3,301,513
-----------
Fair value of net assets acquired $ 4,657,137
===========
The purchase was paid for as follows:
Cash paid ($2,000 - June 30, 2000 and
$2,789,213 - August 1, 2000) $ 2,791,213
Payable to seller upon collection of specific
accounts receivable 578,665
Noninterest-bearing notes payable to Seller, net of
discount of $244,504 1,287,259
-----------
Purchase price $ 4,657,137
===========
During fiscal 2001, the Company amortized goodwill using a fifteen-year
life. Beginning January 1, 2002, the Company adopted Statement of
Financial Accounting Standards No. 142 (SFAS 142) "Goodwill and Other
Intangible Assets," and as a result ceased amortizing goodwill. The
Company tests goodwill for impairment annually or on an interim basis if
an event or circumstance occurs between the annual tests that may
indicate impairment of goodwill. Impairment of goodwill will be
recognized in operating results in the period it is identified. Had the
Company recorded amortization expense during the nine months ended June
30, 2003 and the nine months ended September 30, 2002, unaudited pro
forma net income (loss) would have been approximately $(409,000) and
$(25,000), respectively.
F-20
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
Income Taxes - The Company has been organized as a limited liability
partnership. Accordingly, no provision for income taxes has been
provided for in the financial statements since taxable income of the
Company is required to be reported by the respective partners on their
income tax returns. However, the Company has included unaudited
estimated pro forma income taxes and the resulting pro forma net income
(loss) in the statements of income. Pro forma income taxes (tax refund)
were estimated using the effective Federal and state tax rates, as if
the Company was a C-Corporation.
Concentrations of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily
of trade receivables. The Company grants credit to distributors of
sports and area lighting poles located throughout the United States of
America. Collateral is generally not required for the Company's trade
receivables.
Use of Estimates - In preparing financial statements in conformity with
accounting principles generally accepted in the United States of
America, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents - For purposes of the statements of cash flows, the
Company considers all highly liquid investments with a maturity of three
months or less to be cash equivalents. There were no cash equivalents at
September 30, 2002 or June 30, 2003.
Revenue Recognition - The Company recognizes revenue in accordance with
SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements (SAB 101), as amended by SAB 101A and 101B. SAB 101 requires
that four basic criteria must be met before revenue can be recognized:
(1) persuasive evidence of an arrangement exists; (2) delivery has
occurred or services rendered; (3) the fee is fixed and determinable;
and (4) collectibility is reasonably assured. Company product is made to
customer or industry specifications at an agreed upon price as typically
specified in the customer purchase order. Title passes to the customer
at the point of shipment along with all the risks and rewards of
ownership. Customers receive a one-year product warranty for defects in
materials and workmanship providing repair or replacement or refund of
purchase price. The Company provides an accrual as a reserve for
potential warranty costs, which historically have not been significant.
Stock-Based Compensation - The Company accounts for partnership
interest-based compensation for employees using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, compensation cost for partnership options granted to
employees is measured as the excess, if any, of the market price of the
Company's partnership interest at the measurement date (generally, the
date of grant) over the amount an employee must pay to acquire the
partnership interest.
F-21
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
In October 1995, the Financial Accounting Standards Board issued a new
statement titled Accounting for Stock-Based Compensation (SFAS No. 123).
SFAS No. 123 requires that options, warrants, and similar instruments
which are granted to non-employees for goods and services be recorded at
fair value on the grant date. Fair value is generally determined under
an option pricing model using the criteria set forth in SFAS No. 123.
The Company did not adopt SFAS No. 123 to account for partnership
interest-based compensation for employees but is subject to the pro
forma disclosure requirements.
Interim Financial Information - The accompanying interim financial
information as of June 30, 2003 and for the periods ended June 30, 2003
and 2002 and December 31, 2002 has been taken from the Company's books
and records without audit. However, in the opinion of management, such
information includes all adjustments (consisting only of normal
recurring accruals) necessary to fairly present the financial position
as of June 30, 2003 and results of operations of the Company for the
periods ended June 30, 2002 and 2001 and December 31, 2002.
Impact of Recently Issued Accounting Pronouncements - In July 2002, the
FASB issued Statements of Financial Accounting Standards No. 146,
Accounting for Costs Associated with Exit or Disposal Activities (SFAS
146). SFAS 146 requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than at the
date of a commitment to an exit or disposal plan. Examples of costs
covered by SFAS 146 include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS 146
is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. The adoption of SFAS 146 is not expected to
have a material effect on the Company's financial position or results of
its operations.
In August 2002, the FASB issued Statements of Financial Accounting
Standards No. 147, Acquisitions of Certain Financial Institutions (SFAS
147). SFAS 147 requires financial institutions to follow the guidance in
SFAS 141 and SFAS 142 for business combinations and goodwill and
intangible assets, as opposed to the previously applied accounting
literature. This statement also amends SFAS 144 to include in its scope
long-term customer relationship intangible assets of financial
institutions. The provisions of SFAS 147 do not apply to the Company.
In December 2002, the FASB issued Statements of Financial Accounting
Standards No.148, Accounting for Stock-Based Compensation - Transition
and Disclosure - An Amendment of FASB Statement 123 (SFAS 123). For
entities that change their accounting for stock-based compensation from
the intrinsic method to the fair value method under SFAS 123, the fair
value method is to be applied prospectively to those awards granted
after the beginning of the period of adoption (the prospective method).
The amendment permits two additional transition methods for adoption of
the fair value method. In addition to the prospective method, the entity
can choose to either (i) restate all periods presented (retroactive
restatement method) or (ii) recognize compensation cost from the
beginning of the fiscal year of adoption as if the fair value method had
been used to account for awards (modified prospective method). For
fiscal years beginning December 15, 2003, the prospective method will no
longer be allowed. The Company currently accounts for its stock-based
compensation using the intrinsic value method as proscribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to
F-22
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
Employees and plans on continuing using this method to account for stock
options, therefore, it does not intend to adopt the transition
requirements as specified in SFAS 148. The Company has adopted the new
SFAS 148 disclosure requirements of SFAS 148 in these financial
statements.
In May 2003, the FASB issued Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity ("FAS 150"). FAS 150 requires that three classes of freestanding
financial statements that embody obligations for entities be classified
as liabilities. Generally, FAS 150 is effective for financial
instruments entered into or modified after May 31, 2003 and is otherwise
effective at the beginning of the first interim period beginning after
June 15, 2003. The Company does not believe the adoption of FAS 150 will
have a material impact on its financial position or results of
operations.
The FASB issued Interpretation ("FIN") No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, in November 2002 and FIN No. 46,
Consolidation of variable Interest Entities, in January 2003. FIN No. 45
is applicable on a prospective basis for initial recognition and
measurement provisions to guarantees issued after December 2002;
however, disclosure requirements are effective immediately. FIN No. 45
requires a guarantor to recognize, at the inception of a guarantee, a
liability for the fair value of the obligations undertaken in issuing
the guarantee and expands the required disclosures to be made by the
guarantor about its obligation under certain guarantees that it has
issued. The adoption of FIN No. 45 did not have a material impact on the
Company's financial position or results of operations. FIN No. 46
requires that a company that controls another entity through interest
other than voting interest should consolidate such controlled entity in
all cases for interim periods beginning after June 15, 2003. Management
does not believe the adoption of FIN No. 46 will have a material impact
on its financial position or results of operations.
2. INVENTORIES:
Inventories are comprised of the following:
June 30,2003 September 30, 2002
------------ ------------------
(unaudited)
Raw materials $1,093,152 $ 580,060
Work in process 176,628 271,973
Finished goods 52,155 --
---------- ----------
$1,321,935 $ 852,033
========== ==========
F-23
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
3. REVOLVING NOTE PAYABLE:
The Company has a revolving credit agreement with a bank which bears
interest at the bank's prime rate plus 1.50% (totaling 5.75% and 6.25%
at June 30, 2003 and September 30, 2002) which enables the Company to
borrow up to the lesser of $2,000,000 or the aggregate of 80% of
eligible accounts receivable and 50% of eligible inventory as defined by
the agreement. Borrowings outstanding on the revolving loan were
$1,673,884 and $1,087,025 at June 30, 2003 and September 30, 2002,
respectively.
Borrowings under the revolving credit agreement are collateralized by
essentially all assets of the Company including accounts receivable and
inventory. The agreement requires the Company to maintain certain
financial covenants which include tangible net worth, cash flow coverage
and debt ratios as defined in the agreement. As of June 30, 2003, the
Company was not in compliance with certain financial covenants, whereby
enabling the lender to call the note on demand. The lender is aware of
this non-compliance and the Company does not believe its lender will
initiate any action which would be detrimental to the Company's
liquidity situation. The agreement also limits the amount of additional
third-party borrowings the Company can obtain and the amount of
distributions the Company can pay partners. The agreement is subject to
annual review by the lender who has the right to terminate or change any
of the terms and conditions of the agreement.
4. LONG-TERM DEBT:
Long-term debt at year end consists of the following:
June 30, September 30,
2003 2002
--------------- ----------------
(unaudited)
Noninterest-bearing note payable to an individual, discounted at 6.3%
(unamortized discount of $47,766 and $75,509 at June 30, 2003 and
September 30, 2002), payable in annual installments of $217,851 (a). $ 613,347 $ 578,043
Noninterest-bearing note payable to an individual, discounted at 6.22%
(unamortized discount of $15,148 and $20,207 at June 30, 2003 and
September 30, 2002, respectively), payable in monthly installments of $7,375 (a) 167,720 222,175
Note payable to an individual with indirect ownership in the partnership,
note was assigned to a nonrelated limited partnership effective December
27, 2001, principal due July 31, 2005, interest payable monthly at a
fixed rate of 15% (b) 700,000 700,000
Note payable to a family member of a partner, rate of 15%, unsecured (b) (c) -- 50,000
F-24
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
June 30, September 30,
2003 2002
--------------- ----------------
Subordinated note payable to a partner, rate 15%, unsecured. (c) -- 250,000
Subordinated note payable to a partner, due April 30, 2007, rate 15%,
unsecured. 20,000 20,000
Subordinated note payable to a partner, rate 15%, unsecured. (c) -- 76,000
Subordinated note payable to a partner, due April 30, 2007, rate 15%,
unsecured. 50,000 50,000
Subordinated note payable to an individual, due April 30, 2007, rate 15%,
unsecured. 150,000 150,000
------------- ---------------
1,701,067 2,096,218
Less current maturities (490,726) (257,646)
-------------- ---------------
$ 1,210,341 $ 1,838,572
============= ===============
(a) Notes are collateralized by all assets of the Company. The security
interest in inventory and accounts receivable is subordinated to the
revolving bank note and the security interest in all assets is
subordinated to notes marked as (b).
(b) Notes are collateralized by all assets of the Company but are
subordinated to the revolving bank note.
(c) In January 2003, the Company converted three individual notes payable
held by existing members of the partnership into partnership units at
$6,617.38 per unit. The conversion rate was determined based on
"negotiated" best estimate of fair market value of the underlying
partnership units at the conversion date between the parties.
Interest was paid to note holders on the date of conversion.
Aggregate annual maturities of long-term debt at September 30, 2002 are
as follows:
2003 $ 257,646
2004 523,133
2005 1,019,439
2006 --
2007 296,000
---------------
$ 2,096,218
F-25
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
During the nine months ended June 30, 2003 and 2002, the nine months
ended September 30, 2002 and the year ended December 31, 2001, the
Company had $7,875, $15,525, $27,875 and $0, respectively, of interest
expense on notes due to related parties.
5. MAJOR CUSTOMERS, MAJOR SALES AGENCIES AND SIGNIFICANT CONCENTRATIONS:
During the nine months ended September 30, 2002 and the year ended
December 31, 2001, one customer accounted for more than 10% of the
Company's sales, totaling 14% and 14%, respectively. The Company grants
lighting agencies the exclusive right to sell the Company's products in
given geographical locations. During the nine months ended September 30,
2002, one agency accounted for more than 10% of the Company's sales,
totaling 10%.
During the nine months ended September 30, 2002 and the year ended
December 31, 2001, 45% and 85% of the Company's material and assembly
purchases of lighting poles were from two vendors. Although there are
multiple vendors with which the Company could enter into agreements, the
deterioration or cessation of either relationship could have a material
adverse effect, at least temporarily, on the Company as it attempts to
negotiate agreements with other manufactures of lighting poles. Accounts
payable to these two vendors were $711,862 and $1,149,766 as of
September 30, 2002 and June 30, 2003, respectively.
6. PARTNERSHIP OPTIONS:
Partnership Option Plans - In June 2000, the partners began issuing
options for the purchase of partnership units to certain key employees.
Approximately 241 units have been issued through June 30, 2003,
including 35 units in December 2002.
F-26
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
Following is a summary of partnership option activity:
Range of Weighted
Employee Exercise Prices Average
Options ------------------------ Exercise
Outstanding Low High Price
------------ ---------- --------- -----------
Balances, December 31, 2001 300 $ 1,000 $ 1,000 $ 1,000
Granted 146 2,887 2,887 2,887
Terminated/Canceled (240) 1,000 2,887 1,348
------------ ---------- --------- -----------
Balances, September 30, 2002 206 1,000 2,887 1,931
Granted (unaudited) 35 2,887 2,887 2,887
------------ ---------- --------- -----------
Balances, June 30, 2003 (unaudited) 241 $ 1,000 $ 2,887 $ 2,070
============ ========== ========= ===========
Vested options (unaudited) 118 $ 1,000 $ 2,887 $ 1,216
============ ========== ========= ===========
If not previously exercised, options expire as follows:
Weighted
Average
Year Ending Number of Exercise
September 30, Shares Price
------------ -------- -----------
2011 127 $ 1,327
2012 22 2,887
2013 92 2,887
--------
241
F-27
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
Proforma Stock-Based Compensation Disclosures - SFAS No. 123 requires the
Company to provide pro forma information regarding net income as if
compensation costs for the Company's partnership option plans and other
partnership interest awards had been determined in accordance with the
fair value based method prescribed in SFAS No. 123. The Company estimates
the fair value of each partnership award at the grant date by using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
June 30, September 30, December 31,
2003 2002 2001
------------------ ------------------ -----------------
(unaudited)
Dividend yield 0% 0% 0%
Volatility 0% 0% 0%
Risk free interest rate 3.83% 3.61% 4.55%
Expected life 10 years 10 years 10 years
Under the accounting provisions of SFAS No. 123, there was no effect to
the Company's net income for the nine months ended September 30, 2002
and the year ended December 31, 2001.
7. RELATED PARTY TRANSACTIONS:
During the nine months ended June 30, 2003 and 2002, the nine months
ended September 30, 2002 and for the year ended December 31, 2001, the
Company paid $49,315, $42,000, $24,000 and $12,000, respectively, for
accounting and administrative services to an entity related through
common ownership through May 2002.
During the nine months ended June 30, 2003 and 2002, the nine months
ended September 30, 2002 and the year ended December 31, 2001, the
Company had sales of $262,223, $311,248, $266,580, and $679,527,
respectively, to an entity whose principal owner is the brother of an
employee of the Company. Accounts receivable from this related entity
were $27,743 and $24,894 at June 30, 2003 and 2002, respectively.
See Notes 4 and 9 for other related party transactions.
F-28
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
8. COMMITMENTS:
The Company leases a facility and equipment under operating leases
expiring at various dates through 2005.
The future minimum payments required under these operating leases are as
follows:
Year Ending
September 30,
2003 $ 40,166
2004 6,783
2005 2,220
--------------
$ 49,169
Rent expense for the nine months ended June 30, 2003 and 2002, the nine
months ended September 30, 2002 and the year ended December 31, 2001,
was $34,331, $39,993, $39,364 and $55,525, respectively.
9. SUBSEQUENT EVENTS:
On August 27, 2003, the Company merged with Catalyst Lighting Group,
Inc. (CLG) (formerly known as Wentworth III, Inc.) and received
3,191,368 shares of common stock of CLG. For financial statement
purposes, the Company will be considered the acquiring company. For
legal purposes, however, CLG will remain the surviving entity,
therefore, the combined entity will retain CLG's capital structure and
all the partnerships' units will be converted into common stock of CLG
at approximately 3,574 shares of common stock for each unit outstanding.
Keating Investments, LLC ("KI") is a Colorado state registered
investment advisor and owns 89% of Keating Securities, LLC ("KS"), a
registered broker-dealer. In connection with the reverse merger, KS
received an investment banking fee, part of which has been paid through
the issuance of 200,000 shares of Catalyst Lighting Group, Inc.'s common
stock. An officer, director and shareholder of KI (the KI Principal) is
the son of a director and shareholder of CLG.
F-29
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
CLG is in the process of filing a registration statement with the
Securities and Exchange Commission for the sale of up to 1,500,000
shares of common stock at $2.00 per share (the Offering). KI is the
broker-dealer selling the shares being offered by CLG. In addition to
the 200,000 shares of common stock already issued to KS, KI will receive
(a) an investment banking fee of $100,000, which is due in 10 monthly
payments of $10,000 each beginning 30 days after CLG's common stock
begins trading on the Over-the-Counter Bulletin Board, (b) a 10% cash
placement fee and 3% expense allowance of securities placed by KI in the
offering. In addition, CLG shall issue five-year common stock purchase
warrants entitling KI to purchase up to 10% of the securities sold by
KI, at an exercise price of 100% of the per share price of the Offering.
On August 6, 2003, Whitco Company LLP received a bridge loan of $250,000
from Keating Reverse Merger Fund ("Lender"). The note and accrued
interest is due February 6, 2004. Interest on the note is at a rate of
10%. In consideration for the note, the Company agreed to issue warrants
for the purchase of up to 125,000 shares (the "Warrant Shares") of the
common stock of CLG upon consummation of the Merger at a price of $2.00
per Warrant Share. The agreement carries certain rights to repay the
note early following any capital raised by the company. KI is the
investment advisor and managing member of the Lender. Additionally, the
KI Principal is an investor in the Lender.
F-30
PRO FORMA FINANCIAL INFORMATION
INTRODUCTION
In August 2003, Catalyst Lighting Group, Inc. (CLG) completed a merger with
Whitco (WC). On January 31, 2003, certain noteholders converted $375,000 of
notes that were outstanding at December 31, 2002 into partnership units which
are to be exchanged into CLG common stock. CLG's assets and liabilities were
nominal at the date of the agreement. The transaction is accounted for as a
reverse merger acquisition, which results in a recapitalization of WC in as much
as it is deemed to be the acquiring entity for accounting purposes. The
registrant intends to adopt Whitco's year end.
The accompanying unaudited pro forma combining, condensed balance sheet combines
the balance sheet of WC as of June 30, 2003 with the balance sheet of CLG as of
June 30, 2003.
The accompanying unaudited pro forma combining, condensed statements of
operations combine the operations of WC and CLG for the nine months ended June
30, 2003 and for the twelve months ended December 31, 2002, as if the
acquisition and conversion of notes was completed as of the beginning of the
periods presented under the purchase method of accounting.
These statements are not necessarily indicative of future operations or the
actual results that would have occurred had the merger been consummated at the
beginning of the periods indicated.
The unaudited pro forma combined, condensed financial statements should be read
in conjunction with the historical financial statements and notes thereto,
included elsewhere in this document.
F-31
WHITCO COMPANY, LLP
CATALYST LIGHTING GROUP, INC.
PRO FORMA
COMBINING, CONDENSED BALANCE SHEET
(unaudited)
CATALYST
WHITCO LIGHTING
COMPANY, LLP GROUP, INC.
JUNE 30, JUNE 30, PRO FORMA
2003 2003 MERGER COMBINED
------------- ------------ ----------- -------------
ASSETS
CURRENT ASSETS:
Cash $ -- $ 376 $ -- $ 376
Trade receivables 2,640,753 -- -- 2,640,753
Inventory 1,321,935 -- -- 1,321,935
Prepaid expenses and other 25,574 -- -- 25,574
------------- ------------ ----------- -------------
Total current assets 3,988,262 376 -- 3,988,638
CASH RESTRICTED -- 45,000 -- 45,000
PROPERTY AND EQUIPMENT, net 114,074 -- -- 114,074
OTHER ASSETS
Goodwill 2,971,362 -- -- 2,971,362
Other 15,793 -- -- 15,793
------------- ------------ ----------- -------------
TOTAL ASSETS $ 7,089,491 $ 45,376 $ -- $ 7,134,867
============= ============ =========== =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving note payable $ 1,673,884 -- $ -- $ 1,673,884
Current portion of notes payable 490,726 -- -- 490,726
Other current liabilities 2,670,632 44,058 (b) 50,000 2,764,690
------------- ------------ ----------- -------------
Total current liabilities 4,835,242 44,058 50,000 4,929,300
LONG-TERM OBLIGATIONS, net of current portion 1,210,341 -- -- 1,210,341
------------- ------------ ----------- -------------
TOTAL LIABILITIES 6,045,583 44,058 50,000 6,139,641
STOCKHOLDERS' EQUITY:
Common stock/partners' contribution 1,030,000 2,000 (b) 2,000 33,914
(c) (1,000,086)
Additional paid-in capital -- 25,937 (b) 386,000 1,385,404
(c) 973,467
Retained earnings (accumulated deficit) 13,908 (26,619)(b) (388,000) (424,092)
------------- ------------- --------------
(b) (50,000)
(c) 26,619
Total stockholders' equity 1,043,908 1,318 (50,000) 995,226
------------- ------------ ------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,089,491 $ 45,376 $ -- $ 7,134,867
============= ============ =========== =============
F-32
WHITCO COMPANY, LLP
CATALYST LIGHTING GROUP, INC.
PRO FORMA
COMBINING, CONDENSED STATEMENT OF OPERATIONS
(unaudited)
CATALYST
WHITCO LIGHTING
COMPANY, LLP GROUP, INC.
FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30, PRO FORMA PRO FORMA
2003 2003 ADJUSTMENTS COMBINED
------------- ------------- ------------ -------------
NET SALES $ 10,644,295 $ -- $ -- $ 10,644,295
COST OF SALES 7,277,750 -- -- 7,277,750
------------- ------------- ------------ -------------
GROSS PROFIT 3,366,545 -- -- 3,366,545
OPERATING EXPENSE 3,614,158 6,773 -- 3,620,931
------------- ------------- ------------ -------------
LOSS FROM OPERATIONS (247,613) (6,773) -- (254,386)
OTHER INCOME (EXPENSE) (a) 14,100
(b) (388,000)
(220,977) 1 (b) (50,000) (644,876)
------------- ------------- ------------ -------------
NET LOSS BEFORE PRO FORMA INCOME TAXES (468,590) (6,772) (423,900) (899,262)
PRO FORMA INCOME TAXES 169,250 2,512 (e) (178,662) (6,900)
------------- ------------- ------------ -------------
NET LOSS $ (299,340) $ (4,260) $ (602,562) $ (906,162)
============= ============= ============ =============
BASIC AND DILUTED NET LOSS PER SHARE $ (.02) $ (.27)
============= =============
COMMON STOCK OUTSTANDING 200,000 (d)3,191,368 3,391,368
============= ============ =============
F-33
WHITCO COMPANY, LLP
CATALYST LIGHTING GROUP, INC.
PRO FORMA
COMBINING, CONDENSED STATEMENT OF OPERATIONS
(unaudited)
WHITCO CATALYST
WHITCO WHITCO COMPANY, LLP LIGHTING
COMPANY, LLP COMPANY, LLP FOR THE GROUP, INC.
FOR THE NINE FOR THE THREE TWELVE MONTHS FOR THE YEAR
MONTHS ENDED MONTHS ENDED ENDED ENDED
SEPTEMBER DECEMBER 31, DECEMBER 31, DECEMBER 31, PRO FORMA PRO FORMA
30, 2002 2002 2002 2002 ADJUSTMENTS COMBINED
------------ ------------- ------------- ------------- ------------ -------------
NET SALES $ 10,243,036 $ 3,282,406 $ 13,525,442 $ -- $ -- $ 13,525,442
COST OF SALES 7,169,790 2,172,735 9,342,525 -- -- 9,342,525
------------ ------------- ------------- ------------- ------------ -------------
GROSS PROFIT 3,073,246 1,109,671 4,182,917 -- -- 4,182,917
OPERATING EXPENSE 2,700,835 1,104,146 3,804,981 18,550 -- 3,823,531
------------ ------------- ------------- ------------- ------------ -------------
LOSS FROM OPERATIONS 372,411 5,525 377,936 (18,550) -- 359,386
OTHER INCOME (EXPENSE) (224,677) (71,519) (296,196) 25 (a) 14,100 (835,071)
(b) (388,000)
(b) (165,000)
NET INCOME (LOSS) BEFORE PRO
FORMA INCOME TAXES 147,734 (65,994) 81,740 (18,525) (538,900) (475,685)
PRO FORMA INCOME TAXES (58,062) 22,838 (35,224) 6,873 (e) 19,121 (9,230)
------------ ------------- ------------- ------------- ------------ -------------
NET INCOME (LOSS) $ 89,672 $ (43,156) $ 46,516 $ (11,652) $ (519,779) $ (484,915)
============ ============= ============= ============= ============ =============
BASIC AND DILUTED NET LOSS PER SHARE $ -- $ (.14)
============= =============
COMMON STOCK OUTSTANDING 200,000 (d) 3,191,368 3,391,368
============= ============ =============
F-34
WHITCO COMPANY, LLP
CATALYST LIGHTING GROUP, INC.
PRO FORMA NOTES TO COMBINING, CONDENSED FINANCIAL INFORMATION
(a) To reflect the reduction of the related interest expense totaling
$14,100 and $14,100 for the nine months ended June 30, 2003 and for the
twelve months ended December 31, 2002, respectively, related to the
conversion of $375,000 of notes payable in January, 2003.
(b) To reflect expenses related to the merger, which are primarily related
to investment banker, legal and accounting fees. The Company incurred
approximately $553,000 of merger expenses. $165,000 will be paid in
cash (of which $115,000 was accrued during the nine months ended June
30, 2003) and the remainder in common stock valued at $388,000.
(c) To reflect the conversion of partnership units of WC to common stock of
the Company and elimination of accumulated deficit of CLG.
(d) To reflect the issuance of 3,191,368 shares in conjunction with the
acquisition.
(e) To reflect income taxes based on the Company's determination that a
valuation allowance to any deferred tax asset would be required as the
Company cannot determine that it is more probable than not that the
deferred tax asset will be realized in the future.
F-35
Catalyst Lighting Group, Inc.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy, by any person in any jurisdiction in which it is unlawful for such
person to make such offer or solicitation. Neither the delivery of this
Prospectus nor any offer, solicitation or sale made hereunder, shall under any
circumstances create an implication that the information herein is correct as of
any time subsequent to the date of the Prospectus.
Until [ ], 2004 (ninety days after the date funds and securities are released
from the escrow account pursuant to Rule 419), all dealers effecting
transactions in the registered securities, whether or not participating in the
distribution thereof, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotment or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The following certificate of incorporation and statute provisions are the only
charter and statute provisions, by-laws, contracts or other arrangements known
to the registrant that insure or indemnify a controlling person, director or
officer of the registrant in any manner against liability which he or she may
incur in his or her capacity as such.
Article SEVENTH of the registrant's certificate of Incorporation
provides that:
No director shall be personally liable to the Corporation or its stockholders
for monetary damages for any breach of fiduciary duty by such director as a
director. Notwithstanding the foregoing sentence, a director shall be liable to
the extent provided by applicable law, (i) for breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the Delaware General Corporation Law, or
(iv) for any transaction from which the director derived an improper personal
benefit. No amendment to or repeal of this Article Seventh shall apply to or
have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director prior
to such amendment.
Section 145 of the Delaware General Corporation Law ("GCL"), provides
that:
(a) A corporation shall have power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that the person is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by the person in
connection with the defense or settlement of such action or suit if the person
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a) and (b) of this section, or in defense
of any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
II-1
(d) Any indemnification under subsections (a) and (b) of this section (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the present or former
director, officer, employee or agent is proper in the circumstances because the
person has met the applicable standard of conduct set forth in subsections (a)
and (b) of this section. Such determination shall be made, with respect to a
person who is a director or officer at the time of such determination, (1) by a
majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) by a committee of such
directors designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director in
defending any civil, criminal, administrative or investigative action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of such director or officer to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the corporation
as authorized in this section. Such expenses (including attorneys' fees)
incurred by former directors and officers or other employees and agents may be
so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall include,
in addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
II-2
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to hear
and determine all actions for advancement of expenses or indemnification brought
under this section or under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
Item 25. Other Expenses of Issuance and Distribution.
Type of Expense Amount of Anticipated Expense
--------------- -----------------------------
Legal fees......................................... $ 40,000*
Accounting fees.................................... 20,000*
Printing costs..................................... 1,500*
Transfer agent fee................................. 4,500
Miscellaneous fees and expenses.................... 9,000*
---------
Total expenses................................ $ 75,000
=========
----------
* Estimated
Item 26. Recent Sales of Unregistered Securities.
On October 9, 2001, Kevin R. Keating, our former President and Chief Financial
Officer, and currently a director, purchased 90,000 shares of common stock for
$.05 per share, or an aggregate of $4,500. These securities were sold pursuant
to an exemption from the securities laws pursuant to Section 4(2) of the
Securities Act of 1933.
Whitco Company, L.L.P.:
On May 1, 2002, the partnership interests of two of the three then-existing
partners of Whitco Company, L.L.P. were purchased for a total of $1.2 Million. A
total of 436 2/3 partnership units were sold for $655,000, at a price per
partnership unit of $1,500, and $545,000 in subordinated debt. There were no
underwriters or commissions paid with respect to this or any other transaction
set forth in this Item 26. These securities were sold pursuant to an exemption
from the securities laws pursuant to Section 4(2) of the Securities Act of 1933,
as the offering of partnership interests was to a limited number of offerees
made without general solicitation in a non-public offering. Further, these
securities were exempted from the registration requirements pursuant to the safe
harbor of Regulation D, as Whitco also had a reasonable belief all investors
were "accredited", based on the subscription agreements executed by each
investor. Additionally, each investor made a representation they were accredited
investors under Rule 501(a) and that they had the necessary sophistication to be
able to fend for themselves. The following tables set out the purchase price and
amount of partnership units and subordinated debt issued with respect to this
transaction:
PARTNERSHIP UNITS ISSUED:
Name Total Purchase Amount Partner Units Purchased
---- --------------------- -----------------------
Celestine C. Depenbusch $200,000 133 1/3
Larry D. Doskocil, Trustee of the
Larry D. Doskocil Living Trust
UAD February 20, 1986, as amended $250,000 166 2/3
John and Jacqueline Middelkamp, JTWROS $ 50,000 33 1/3
June M. Ochsner, Trustee of the June M
Ochsner Revocable Trust dated
October 21, 1997 $ 50,000 33 1/3
Dennis H. Depenbusch $ 1,500 1
Dennis H. Depenbusch and Darcilyn
H. Depenbusch as co-trustees, or their
successors in trust, of the Dennis H
Depenbusch Revocable Trust, dated
December 21, 1998 $103,500 69
Subordinated Debt Issued:
Name Total Expiration Date Interest Rate
---- ----- --------------- -------------
Larry D. Doskocil, Trustee of the Larry
D. Doskocil Living Trust UAD February
20, 1986, as amended $250,000 May 1, 2004 15%
$20,000 May 1, 2007 15%
James K. "Kip" Pritchard $150,000 May 1, 2007 15%
Dennis H. Depenbusch and Darcilyn
H. Depenbusch as co-trustees, or
their successors in trust, of the Dennis H.
Depenbusch Revocable Trust,
Dated December 21, 1998 $75,000 May 1, 2007 15%
Jacqueline N. Middelkamp $50,000 May 1, 2007 15%
On January 31, 2003, all subordinated debt holders were offered the opportunity
to convert such debt into partnership units. These securities were sold pursuant
to an exemption from the securities laws pursuant to Section 4(2) of the
Securities Act of 1933, as the offering of partnership interests was to a
limited number of offerees with an ongoing relationship with Whitco and its
management, made without general solicitation in a non-public offering. The
following table sets out those note holders who chose to convert from debt to
equity:
II-3
Name Total Partnership Units Issued
---- ----- ------------------------
Celestine C. Depenbusch $50,000 7.56
Larry D. Doskocil, Trustee of
the Larry D. Doskocil Living
Trust UAD February 20,
1986, as amended $250,000 37.78
Dennis H. Depenbusch
and Darcilyn H. Depenbusch
as co-trustees, or their
successors in trust, of the
Dennis H. Depenbusch
Revocable Trust,
dated December 21, 1998 $75,000 11.48
Additionally, Whitco granted a total of 241.3485 qualified options to five
employees of Whitco, giving each employee options to purchase partnership units
of Whitco. There were no underwriters, discounts or commissions paid in
connection with the granting of such options. Whitco did not receive any
compensation for the granting of such options as all options were issued in
consideration for the option holder's employment with Whitco. However, all
options were exercisable for cash consideration as set forth below. None of the
options have been exercised, but all were converted on August 27, 2003 to
options to purchase our common stock pursuant to the Securities Exchange
Agreement with Whitco. All options were issued without registration in reliance
on one or more of the following exemptions: Rule 701 and Section 4(2) of the
Securities Act of 1933. Below is a chart setting forth all such issuances:
Vesting
Partnership Units
Issue Granted Pursuant Price Per
Name Date Period to Option Unit
-------------- -------- ------- --------- --------
Kip Pritchard 6/30/00 0 104.5 $ 1,000
Mark Wendt (a) 6/30/00 5 years 104.5 $ 1,000
Tom Lach 9/21/00 5 years 22.333 $ 2,913
Kevin Medlin 10/1/01 5 years 22.333 $ 2,916
Henry Glover 1/1/02 5 years 57.1825 $ 2,916
Henry Glover 12/31/02 5 years 17.5 $ 2,890
Tom Lach 12/31/02 5 years 7 $ 2,890
Kevin Medlin 12/31/02 5 years 7 $ 2,890
Ben Mosqueda 12/31/02 5 years 3.5 $ 2,890
(a) Mr. Wendt is no longer an employee of Whitco. He did not purchase any
partnership units while employed and all options, vested and unvested,
terminated ninety (90) days after his termination as an employee of Whitco.
EXHIBITS
Item 27. Exhibits and Financial Statement Schedules.
** 3.1 Certificate of Incorporation
** 3.2 By-Laws
** 4.1 Specimen Certificate of Common Stock
* 4.2 Escrow Agreement
**** 4.3 Form of Placement Agent Agreement
**** 4.4 Form of Subscription Agreement
**** 5.1 Opinion of Feldman Weinstein LLP
** 10.1 Securities Exchange Agreement, dated as of February 12, 2003
by Wentworth III, Inc. and Whitco Company, L.L.P.
* 23.1 Consent of Hein & Associates LLP
* 23.2 Consent of Hein & Associates LLP
* 23.3 Consent of Grant Thornton LLP
* 23.4 Consent of Goldstein Golub Kessler LLP
*** 23.5 Consent of Feldman Weinstein LLP
--------------------------
* Filed herewith
** Previously filed.
*** Incorporated in Exhibit 5.1
**** To be filed by amendment
Item 28. Undertakings.
The registrant hereby undertakes:
(1) To file, during any period in which if offers or sells securities, a
post-effective amendment to this registration statement to:
(a) include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the SEC pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent
II-4
no more than 20 percent change in the maximum offering price
set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(c) include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Act, to treat each post-effective
amendment, including those that contain a form of prospectus, as a new
registration statement for the securities offered, and the offering of the
securities at that time to be the initial bona fide offering of those
securities.
(3) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities, other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding, is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(4) To, if registering securities under Rule 415 of the Securities Act of 1933,
as amended, file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of such offering.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized the registration
statement to be signed on its behalf by the undersigned, in the City of Fort
Worth, State of Texas, on September 22, 2003
CATALYST LIGHTING GROUP, INC.
By: /s/ Dennis H. Depenbusch
---------------------------
Dennis H. Depenbusch, Chief Executive Officer
and Principal Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Dennis H. Depenbusch, his or her
true and lawful agent, proxy and attorney-in-fact, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to (i) act on, sign and file with the
Securities and Exchange Commission any and all amendments (including
post-effective amendments) to this Registration Statement on Form SB-2 together
with all schedules and exhibits thereto, (ii) act on, sign and file such
certificates, instruments, agreements and other documents as may be necessary or
appropriate in connection therewith and (iii) take any and all actions that may
be necessary or appropriate to be done, as fully for all intents and purposes as
he or she might or could do in person, hereby approving, ratifying and
confirming all that such agent, proxy and attorney-in-fact or any of his
substitutes may lawfully do or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated as of September 29, 2003:
/s/ Dennis H. Depenbusch
------------------------------------ Dated: September 22, 2003
Dennis H. Depenbusch, Chief
Executive Officer, Principal
Executive, Financial and
Accounting Officer
/s/ Henry Glover
------------------------------------ Dated: September 22, 2003
Henry Glover, President and Director
/s/ Kevin R. Keating
------------------------------------ Dated: September 22, 2003
Kevin R. Keating, Director
/s/ Mary Titus
------------------------------------ Dated: September 22, 2003
Mary Titus, Director
/s/ Tracy B. Taylor
------------------------------------ Dated: September 22, 2003
Tracy B. Taylor, Director