UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
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
OR JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
OF ORGANIZATION)
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
warrants issued to
broker-dealers, if any 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.
Final Prospectus dated February 2, 2004.
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 directly to the public in a self-underwritten offering of shares
of our common stock. Subscription monies will be held in an escrow account with
Wells Fargo, N.A. 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**
If 400,000 If 800,000 If 1,200,000
Per share shares sold shares sold shares sold
------------- ------------- ------------- -------------
Offering price $ 2.50 $1,000,000.00 $2,000,000.00 $3,000,000.00
Placement commissions $ .25 $ 100,000.00 $ 200,000.00 $ 300,000.00
Estimated offering expenses $ .0625 $ 25,000.00 $ 50,000.00 $ 75,000.00
Net proceeds to us $ 2.1875 $ 875,000.00 $1,750,000.00 $2,625,000.00
** Our offering has no minimum, with a maximum offering of $3,000,000.
The table above provides offering information based on offering proceeds of
$1,000,000, $2,000,000 and $3,000,000.
Prospectus dated February 2, 2004.
TABLE OF CONTENTS
Page
----
Prospectus Summary............................................. 1
Summary Financial Information.................................. 1
Risk Factors................................................... 2
Dilution....................................................... 4
Plan of Distribution .......................................... 5
Use of Proceeds................................................ 6
Business........................................................ 7
Management's Discussion and Analysis............................ 10
Management..................................................... 13
Statement as to Indemnification................................ 15
Market for our Common Stock.................................... 15
Certain Relationships and Related Transactions................. 16
Principal Stockholders......................................... 17
Description of Securities...................................... 18
Legal Matters.................................................. 18
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.
i
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 summary data for the three months ending December 31, 2001,
the nine months ending September 30, 2002, and the twelve months ending
September 30, 2003 equals the historic net income (loss) adjusted for pro forma
taxes, as if Whitco, the wholly owned subsidiary of Catalyst Lighting Group,
Inc., was a C-corporation for state and federal tax reporting purposes. The
historical financial data for the period ended September 30, 2003 and the nine
months ended September 30, 2002 have 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.
Nine months Three months Twelve months Twelve months
ended ended ended ended
September 30, December 31, September 30, September 30,
2002 2001 2002 2003
Statement of Income Data:
Sales $ 10,243,036 $ 3,637,142 $ 13,880,178 $ 15,758,570
Net Income (Loss) Before
Taxes and Proforma Taxes $ 147,734 $ 180,682 $ 328,416 $ (944,381)
Net Income (Loss) Before
Proforma Taxes $ 147,734 $ 180,682 $ 328,416 $ (1,005,515)
Net Income (Loss) Adjusted
Proforma Taxes $ 89,734 $ 112,682 $ 202,416 $ 791,515
Net Income (Loss) per Share
Adjusted for Taxes and
Proforma Taxes $ .03 $ .03 $ .06 $ (.27)
Weighted Average Commons
Stock Outstanding 3,415,298 4,020,567 3,563,228 2,971,242
As of
September 30,2003
Balance Sheet Data
Working Capital (Deficit) $ (873,650)
Total Assets $ 8,080,051
Long-Term Debt $ 1,153,989
Total Liabilities $ 7,114,170
Total Partners' Equity $ 965,881
1
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.
2
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.
WHITCO SUBSTAINED A LOSS IN THE FISCAL YEAR ENDED SEPTEMBER 30, 2003.
The Company incurred a net loss for fiscal 2003 of $1,005,515. The loss was
partly attributable to significant nonrecurring expenses related to the merger
and its future public offering. Management believes returning the Company to
profitable will be sufficient to allow the Company to continue as a going
concern.
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 October 31, 2003,
Whitco owed PNC approximately $1,899,224. 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.
3
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 consultations with
independent broker-dealers and underwriters 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 552,656 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 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 September 30, 2003.
4
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 September 30, 2003 was
$(2,108,652), or approximately $(0.62) per share, based on 3,391,368
outstanding shares of common stock. After giving effect to the sale of all
400,000 shares, 800,000 shares and 1,200,000 shares at an offering price of
$2.50 per share, the pro forma net tangible book value of Catalyst would be
($1,283,652), ($383,652) and $516,348, respectively, or ($.34), ($.09) and $0.11
per share of common stock, respectively. The amount represents an immediate
increase of net tangible book value (deficit) of $.28, $.53 and $0.73
per share, respectively, to the existing holders of common stock and an
immediate dilution of $2.84, $2.59 and $2.39 per share to our new investors,
respectively.
The following tables illustrate this dilution:
If $1,000,000 is raised:
Offering price per share of common stock $ 2.50
Net tangible book value (deficit)
per share as of September 30, 2003 $ (0.62)
Increase in net tangible pro forma book value
per share attributable to new investors $ 0.28
Pro forma net tangible book value
per share after the offering ($ 0.34)
Dilution per share to new investors $ 2.84
Dilution per share to new investors as
a percentage 114%
If $2,000,000 is raised:
Offering price per share of common stock $ 2.50
Net tangible book value (deficit)
per share as of September 30, 2003 $ (0.62)
Increase in net tangible pro forma book value
per share attributable to new investors $ 0.53
Pro forma net tangible book value
per share after the offering ($ 0.09)
Dilution per share to new investors $ 2.59
Dilution per share to new investors as
a percentage 104%
If $3,000,000 is raised:
Offering price per share of common stock $ 2.50
Net tangible book value (deficit)
per share as of September 30, 2003 $ (0.62)
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 $ 0.11
Dilution per share to new investors $ 2.39
Dilution per share to new investors as
a percentage 96%
PLAN OF DISTRIBUTION
Conduct of this offering
We are offering the shares of common stock in a self-underwritten offering with
no minimum number of shares to be sold. Although we have no placement agent in
connection with the offers and sales of our common stock, we may compensate
certain broker-dealers in connection therewith.
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 us to a date not more than 90 days
thereafter. We reserve the right to withdraw, cancel, modify or reject an order
for the purchase of shares in whole or in part for any reason and reserve the
right to terminate this offering at any time.
Prior to this offering, there has been no public market for our securities. We
have determined the offering price for the common stock in conversations with
independent broker-dealers, taking into account our history, industry, financial
condition, overall current market conditions and potential demand for this
offering.
In our sole discretion, we may pay certain broker-dealers who are members of the
National Association of Securities Dealers any combination of the following: (a)
a commission of up to 7% of the gross proceeds we receive from the sale of our
securities through their efforts and (b) warrants to purchase from us one share
of common stock for each ten shares sold through their efforts in this offering
at an exercise price per share equal to 125% of the offering price per share
hereunder. We may also agree to indemnify such broker-dealers against certain
liabilities, including liabilities under the Securities Act.
Subscribers' checks shall be made payable directly to "Wells Fargo, N.A., as
escrow agent for Catalyst Lighting Group, Inc. Escrow Account". Broker-dealers,
if any, will deposit all checks received from subscribers not later than noon of
the first business day following receipt thereof. Escrowed funds shall only be
invested in accordance with SEC Rule 15c2-4.
5
In the event we issue warrants to any broker-dealer, each warrant shall
represent the right to purchase from us one share of common stock for each ten
shares sold in this offering through the efforts of such broker-dealer 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 issuance and is not redeemable. The warrant has no
anti-dilution protection and is restricted from sale, transfer, assignment or
hypothecation for a period of one year from the effective date of the offering ,
except to officers or partners (not directors) of any placement agent and
members of the selling group and/or their officers or partners.
The holder of the warrant will have, in that capacity, no voting, dividend or
other shareholder rights. Any profit realized by the broker-dealer on the sale
of the shares that may be issued upon exercise of the warrant may be deemed to
be additional compensation to such broker-dealer. 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.
We plan 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 us or any broker-dealer will be immediately deposited by noon
on the first business day after receipt in the escrow account with Wells Fargo,
N.A., as escrow agent. Escrowed funds will be invested only in investments
permissible under SEC Rule 15c2-4.
The proceeds of the offering shall be non-refundable except as may be required
by applicable law.
USE OF PROCEEDS
The gross proceeds of this offering if fully subscribed and compensation is paid
on all amounts raised 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 and compensation is paid on
all amounts raised, 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 and compensation is paid on
all amounts raised, 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.
6
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 2003, 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. No agency
accounted for more than 10% of total sales for the 12 months ended September 30,
2003. 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.
7
For the complete 12 months ended September 30, 2003, Lithonia Lighting, an OEM
customer, accounted for 13.5% 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 15 full-time employees, including its two executive
officers, one controller, three employees performing sales and marketing
functions, three performing engineering, drafting and quotations functions, one
in production control and dispatch and five 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 November 30,
2003. Vested options currently total approximately 552,656 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) 250,779
Kevin B. Medlin Vice President Sales 97,163
Thomas Lach Vice President Engineering 97,163
Ben Mosqueda Manager Quotations/Drafting 11,727
Kip Pritchard Vice President 351,800
Total 808,632
Trademark and Copyright Protection
The Company has applied for trademark protection for the Whitco logo as well as
the logo of Catalyst Lighting Group, Inc. The Company 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 the Company may design, we
intend to seek patent protection where applicable.
Business Strategy
Virtually all of our 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 our historical expertise in this market and the fact
that most of our 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.
8
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 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.
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.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with our
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 from the sale of 50,000 shares, 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 the public
offering 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.
Based on the above transactions, we have provided management's discussion and
analysis of financial condition and results of operations for Whitco for the
year ending September 30, 2003 and 2002 and for Catalyst Lighting Group, Inc.,
from the date of acquisition, August 27, 2003.
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 our 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 our
accounting policies are considered critical as they are both important to the
portrayal of our financial condition and the results of our operations and
require significant judgments on the part of management. Management believes 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.
The Company states inventory at the lower of cost or market, determined under
the first-in, first-out method. We maintain 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, We amortized goodwill using a fifteen-year life. Beginning
January 1, 2002, We adopted Statement of Financial Accounting Standards No. 142
(SFAS 142) "Goodwill and Other Intangible Assets," and as a result ceased
amortizing goodwill. We test 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.
We utilize our best estimate for allowance for doubtful accounts based on past
history and accruing the expense as a percentage of sales. We grant 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 we consider our 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.
Our customers receive a one year product warranty for defects in material and
workmanship, providing repair or replacement or refund of the purchase price. We
provide an accrual as a reserve for potential warranty costs based on historical
experience and accruing as a percentage of sales. While management considers our
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 us to adjust its reserve for potential warranty
costs.
10
Impact of Recently Issued Accounting Pronouncements - 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.
Year ended September 30, 2003 compared to the year ended September 30, 2002
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 unaudited 12 months ended September 30,
2002 is summarized in the following table compared to the audited 12 months
ended September 30, 2003. The data below was adjusted for pro forma taxes,for
periods before the twelve months ending September 30,2003, as if Whitco, the
fully owned subsidiary of Catalyst Lighting Group, Inc., was a C-corporation for
state and federal tax purposes.
12 Months 12 Months 9 Months 3 Months
Ended Ended Ended Ended
9/30/03 9/30/02 9/30/02 12/31/01
---------------------------------------------------------------
Sales $15,758,570 $13,880,178 $10,243,036 $3,637,142
----------------------------------------------------------------------------------------------
Cost of Sales $10,834,944 $9,535,886 $7,169,790 $2,366,096
----------------------------------------------------------------------------------------------
Gross Margin on Sales $ 4,923,626 $4,344,292 $3,073,246 $1,271,046
----------------------------------------------------------------------------------------------
General Selling and
Administrative
Expenses $ 4,934,542 $ 3,720,151 $ 2,700,835 $ 959,442
----------------------------------------------------------------------------------------------
Amortization of
Goodwill $ 0 $ 0 $ 0 $ 59,874
----------------------------------------------------------------------------------------------
Income from
Operations ($ 10,916) $ 624,141 $ 372,411 $ 251,730
----------------------------------------------------------------------------------------------
Reverse Merger Expense $ 606,621
-----------
----------------------------------------------------------------------------------------------
Interest Expense $ 326,844 $ 295,725 $ 224,677 $ 71,048
----------------------------------------------------------------------------------------------
Income (Loss) Before Taxes
And Pro Forma Income
Taxes ($ 944,381) $ 328,416 $ 147,734 $ 180,682
----------------------------------------------------------------------------------------------
Provision for Taxes $ 61,134 $ 0 $ 0 $ 0
Income (Loss) Before
Taxes ($1,005,515) $ 328,416 $ 147,734 $ 180,682
Pro Forma Income Taxes $ 214,000 ($ 126,000) ($ 58,000) $ 68,000)
----------------------------------------------------------------------------------------------
Pro Forma Net
Income (Loss) ($ 791,515) $ 202,416 $ 89,734 $ 112,682
----------------------------------------------------------------------------------------------
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 twelve months ended September 30, 2003, the recognized
revenue was $15,758,570. For the twelve months ended September 30, 2002, the
recognized revenue was $13,880,178. Cost of goods sold in the twelve months
ended September 30, 2003, was $10,834,944, which generated a gross margin of
31.2%, versus 31.3% for the twelve months ended September 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 twelve months ended
September 30, 2003, operating expenses totaled $4,934,542, compared to
$3,720,151 for the twelve months ended September 30, 2002. The increase in
operating expenses resulted from the increase in commission expenses 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 twelve months ended September 30, 2003, and $59,874 for
the twelve months ended September 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.
11
Commission expense. For the twelve months ended September 30, 2003,
commission expense was $2,557,846, compared with $1,906,051 for the twelve
months ended September 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 twelve months ended September 30,
2003 was $202,171, compared with $104,702 for the twelve months ended September
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.
Product development expense. For the twelve months ended September 30,
2003, product development expense was $138,863, compared with $28,646 for the
twelve months ended September 30, 2002. The increase in product development for
the comparative twelve-month period is principally attributable to the further
development of Whitco's sports lighting product offering.
Salaries, wages, and labor related. For the twelve months ended
September 30, 2003, salaries and wages totaled $1,328,666, compared to
$1,124,445 for the twelve months ended September 30, 2002. The increase in
salaries and wages can be attributed to additional personnel hired during the
2003 fiscal year.
Travel and entertainment expense. For the twelve months ended September
30, 2003, travel and entertainment expense was $135,264, compared with $88,426
for the twelve months ended September 30, 2002. The increases in travel and
entertainment expense for the comparative period reflects additional travel and
customer visitations during the period.
Health and general insurance expense. For the twelve months ended
September 30, 2003, was $123,599, compared with $85,243 for the twelve months
ended September 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 twelve months ended
September 30, 2003 was $326,844, compared with $295,725 for the twelve months
ended September 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.
Other Expense. For the twelve months ended September 30, 2003 Catalyst
Lighting Group incurred a $606,621 expense associated with the merger to become
Catalyst Lighting Group compared to $0 for the twelve months ended September 30,
2002. The Company recognized a $17,768 loss for disposal of fixed assets during
the twelve months ended September 30, 2003.
Liquidity and Capital Resources
At September 30, 2003, Catalyst Lighting Group's working capital deficit was
$873,650, which represented a decrease in working capital of $726,672 over
September 30, 2002. This represents increases in the following: Trade
receivables increased from $2,280,109 at September 30, 2002 to $3,472,776 at
September 30, 2003, including provision for bad debts of $54,442 at September
30, 2002 and $53,892 at September 30, 2003. Receivables increased in reflection
to an increase in sales. Other account changes include an increase in accounts
payable of $1,196,821, an increase in inventory of $459,097, an increase in
revolving notes payable of $985,497, an increase in accrued liabilities of
$103,393, an increase of cash of $96,591 and an increase in pre-paid expenses of
$29,473. 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 2003.
The changes in accrued liabilities, revolving notes payable and pre-paid
expenses are related to normal timing of the different category of accounts
through this year. The increase in the working capital deficit is primarily the
result of the net loss of $1,005,515 for the year ended September 30, 2003.
Cash provided by (used in) operations for the twelve months ended September 30,
2003, and the nine months ended September 30, 2002 was ($897,521), and $397,110
respectively. The cash used by operations for the twelve months ended September
30, 2003 resulted primarily from a loss of $1,005,515, an increase in trade
receivables of $1,192,666, an increase in inventories of $459,097 and an
increase in prepaid expenses and other of $29,473. Accrued liabilities increased
by $103,393 and accounts payable increased by $1,196,820.
Primarily as a result of purchases of property and equipment in the periods
described below, cash used in investing activities for the twelve months ended
September 30, 2003, and the nine months ended September 30, 2002, was $16,260
and ($74,307)respectively.
Cash provided/(used in) financing activities for the twelve months ended
September 30, 2003 and nine months ended September 30, 2002 was $977,852, and
($322,803) respectively. For the twelve months ended September 30, 2003 there
was an increase in revolving notes payable of $985,497 and payments on
short-term and long-term notes payable of $7,645. 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 notes payable
was $224,527 and $99,276, respectively.
12
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 $40,000 through December 31, 2003. Regarding repayment of debt,
over the next 12 months Whitco's current maturities of long term debt as of
September 30, 2003 is approximately $524,134, consisting of subordinated debt.
For the next 12 months, one $250,000 payment is due on January 6, 2004, and one
$217,850 payment is due on June 30, 2004, while the rest is spread evenly over
the entire year. Whitco and Catalyst intend 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 our 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. Whitco
has received a $500,000 line increase through the end of November. The
outstanding balance at September 30, 2003 was approximately $2,072,522 and the
balance as of October 31, 2003 was approximately $1,899,224. Whitco can borrow
the lesser of $2,500,000 through the end of November 2003 or the lesser of
$2,000,000 thereafter 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 can be
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, Secretary 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 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.
13
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 $2,000
for each year thereafter in addition to the audit committee meeting fees.
Messrs. Depenbusch and Glover will not receive any additional compensation for
serving on our Board. To date, no Board of Directors' fees have been paid,
however, Whitco did reimburse board members for expenses incurred in connection
with informal meetings prior to the securities exchange with us.
The following table sets forth information concerning compensation for services
rendered to Whitco by its President and by its executive officers.
SUMMARY COMPENSATION TABLE
Long Term Compensation
The following table sets forth information regarding the compensation paid
during the year ended September 30, 2003, the nine months ended September 30,
2002 and the year ended December 31, 2001 to Dennis H. Depenbusch and Henry
Glover. Mr. Depenbusch is Chairman, Secretary and CEO of Catalyst and Mr. Glover
is a Board Member and President. Both are the only executive officers of
Catalyst. Prior to consummation of the transaction with Whitco, we did not
provide cash compensation to our officers or directors for their services. There
are no other anticipated officer assignments at the present time.
Name and All Other Other Securities All
Principal Positions Annual Underlying LTIP Other
Salary Bonus Compensation Options Payouts Compensation
($) ($) ($) (#) ($) ($)
Dennis Depenbusch
Managing Partner/CEO
and Chairman (1) 2003 $130,000 $ 0 $ 0 0 0 0
Henry Glover
President (2) 2003 $145,000 $ 0 $ 0 58,633(4) 0 0
Dennis Depenbusch
Managing Partner 2002 $ 97,499 $ 0 $ 0 0 0 0
Henry Glover
President 2002 $ 97,499 $ 0 $ 24,706(3) 190,977(4) 0 0
Dennis Depenbusch
Managing Partner 2001 $100,000 $ 0 $ 0 0 0 0
Henry Glover
President (5) 2001 $ 0 $ 0 $ 0 0 0 0
Dennis Depenbusch
Managing Partner (6) 2000 $ 50,000 $ 0 $ 0 0 0 0
(1) Mr. Depenbusch was the managing partner of Whitco prior to consummation of
the merger transaction with Catalyst and is currently the CEO and Chairman of
the Board of Directors of Catalyst. As the merger transaction was not
consummated until August 27, 2003, $119,167 of salary was paid to Mr. Depenbusch
by Whitco through August 31, 2003 and $10,833 was paid by Catalyst through
September 30, 2003.
14
(2) Mr. Glover was the President of Whitco prior to consummation of the merger
transaction with Catalyst and is currently the President and a member of the
Board of Directors of Catalyst. As the merger transaction was not consummated
until August 27, 2003, $137,500 of salary was paid to Mr. Glover by Whitco
through August 31, 2003 and $12,500 was paid by Catalyst through September 30,
2003.
(3) Represents compensation related to relocation expenses associated with the
hiring of Mr. Glover.
(4) These were options to purchase 74.6825 partnership units of Whitco which,
upon consummation of the merger with Whitco on August 27, 2003, were converted
into options to purchase 250,222 shares of common stock.
(5) Henry Glover began employment with Whitco on January 2, 2002.
(6) Whitco Company, LLP acquired Whitco Sales, Inc. on June 30, 2000.
For the year ended September 30, 2003, and the nine months ended September 30,
2002 options to purchase 17.5 and 57 partner units, respectively, were granted
to Henry Glover at a strike price of approximately $2,890 per unit. These
options, on a converted basis represent 249,610 shares of Catalyst common stock
at a strike price of $0.86 per share. 58,633 of these options became fully
vested when Catalyst became subject to the periodic reporting under the
Securities Exchange Act of 1934. The remaining 190,977 options vest equally over
a 5 year period, but immediately vest in full in the event Catalyst receives an
offer to sell substantially all of its assets which offer Catalyst desires to
accept.
Compensation of Directors
Upon the first closing of the sale of shares offered pursuant hereto, 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.
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 agree to indemnify broker-dealers selling shares in this
offering, 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 they 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 such broker-dealers 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.
15
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:
September 30,
2003
-------------
Noninterest-bearing note payable to an individual, discounted at 6.3%
(unamortized discount of $38,519 and $75,509 at September 30, 2003 and
September 30, 2002), payable in annual installments of $217,851. The note
was issued to the Pritchard family from which Whitco was purchased on
June 30, 2000. 397,183
Noninterest bearing note payable to Kip Pritchard, an employee,
discounted at 6.22% (unamortized discount of $8,490 and $20,207 at
September 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. 146,389
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
Subordinated, unsecured 15% note payable to an owner, 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
Subordinated, unsecured 15% note payable to an owner, 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
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
Subordinated, 10% unsecured note payable to Keating Reverse Merger Fund, LLC
due January 6, 2004. This note was issued on August 6, 2003. 214,551
----------
$1,678,123
Less current maturities (524,134)
----------
$1,153,989
==========
During the twelve months ended September 30, 2003, the nine months ended
September 30, 2002 and the year ended December 31, 2001, Whitco had $33,416,
$27,875, and $0, respectively, of interest expense on notes due to related
parties.
OTHER RELATED TRANSACTIONS:
During the twelve months ended September 30, 2003, the nine months ended
September 30, 2002 and for the year ended December 31, 2001, Whitco paid
$60,800, $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 twelve months ended September 30, 2003, the nine months ended
September 30, 2002 and the year ended December 31, 2001, Whitco had sales of
$423,760, $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 $92,305 and $24,894 at September 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 Investments, LLC was a finder in connection with the merger 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. Timothy J. Keating, son of Kevin R.
Keating, our former President and Chief Financial Officer, and currently a
director, owns approximately 60% of Keating Investments. Kevin R. Keating has no
ownership interest in Keating Investments.
On August 6, 2003, Keating Reverse Merger Fund, LLC, a Delaware limited
liability company ("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 January 6, 2004.
Keating Investments is the managing member of KRMF. In addition to his ownership
interest in Keating Investments, as described above, Timothy J. Keating also
individually owns, as of the date hereof, 5% of KRMF. Kevin R. Keating has no
ownership interest in Keating Reverse Merger Fund.
Due to the fact that NASD Rule 2460 specifically prohibits broker-dealers 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, any broker-dealers who receive compensation pursuant to
this offering shall represent to us in writing 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 is not intended to be,
and should not be construed to be, for the provision of any market-making
services.
16
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.
17
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 September 30, 2003 and for the year then
ended and for the nine months ended September 30, 2002 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.
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.
18
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.
19
INDEX TO FINANCIAL STATEMENTS
INDEPENDENT AUDITOR'S REPORT............................................................................F-2
CONSOLIDATED BALANCE SHEET - September 30, 2003.........................................................F-3
CONSOLIDATED STATEMENTS OF OPERATIONS - For the Year Ended September 30, 2003, the Nine Months
Ended September 30, 2002, and the Three Months Ended December 31, 2001 (unaudited).................F-4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - For the Nine Months Ended
September 30, 2002 and for the Year Ended September 30, 2003.......................................F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS - For the Year Ended September 30, 2003 and the
Nine Months Ended September 30, 2002...............................................................F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..............................................................F-7
F-1
INDEPENDENT AUDITOR'S REPORT
To the Shareholders
Catalyst Lighting Group, Inc.
Ft. Worth, Texas
We have audited the accompanying consolidated balance sheet of Catalyst Lighting
Group, Inc. as of September 30, 2003, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year ended September
30, 2003 and nine months ended September 30, 2002. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Catalyst Lighting Group, Inc. as of September 30, 2003 and the results of their
operations and their cash flows for the year ended September 30, 2003 and for
the nine months then ended, in conformity with accounting principles generally
accepted in the United States of America.
HEIN + ASSOCIATES LLP
Denver, Colorado
October 31, 2003
F-2
CATALYST LIGHTING GROUP, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30,
2003
-----------
ASSETS
CURRENT ASSETS:
Cash $ 96,591
-----------
Trade receivables, less allowance for doubtful accounts of $53,892 3,380,471
Trade receivable - related party 92,305
Inventories, net of reserve of $64,698 1,311,130
Prepaid expenses and other 49,502
Deferred tax asset 47,699
-----------
Total current assets 4,977,698
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $58,410 115,198
OTHER ASSETS:
Goodwill, net of accumulated amortization of $330,151 2,971,362
Other 15,793
-----------
Total other assets 2,987,155
-----------
$ 8,080,051
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving note payable $ 2,072,522
Current maturities of long-term debt:
Related party 250,000
Other 274,134
Accounts payable 2,447,756
Accrued commissions 587,383
Other accrued liabilities 219,553
-----------
Total current liabilities 5,851,348
-----------
LONG-TERM DEBT, less current maturities:
Related party 70,000
Other 1,083,989
-----------
Total long-term debt 1,153,989
DEFERRED TAXES 108,833
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value; authorized 10,000,000 shares, none issued
- Common stock - $.01 par value; authorized 40,000,000 shares,
3,391,368 shares issued and outstanding 33,914
Additional paid-in capital 1,454,984
Accumulated deficit (523,017)
-----------
Total stockholders' equity 965,881
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,080,051
===========
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-3
CATALYST LIGHTING GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE FOR THE THREE
FOR THE YEAR MONTHS ENDED MONTHS ENDED
ENDED SEPTEMBER SEPTEMBER 30, DECEMBER 31,
30, 2003 2002 2001
------------ ------------ ------------
(unaudited)
NET SALES $ 15,758,570 $ 10,243,036 $ 3,637,142
COST OF SALES 10,834,944 7,169,790 2,366,096
------------ ------------ ------------
GROSS MARGIN ON SALES 4,923,626 3,073,246 1,271,046
GENERAL, SELLING AND ADMINISTRATIVE EXPENSES:
General, selling and administrative expenses, other 4,934,542 2,700,835 961,867
Amortization of goodwill -- -- 57,449
------------ ------------ ------------
Total general, selling and administrative expenses 4,934,542 2,700,835 1,019,316
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (10,916) 372,411 251,730
OTHER EXPENSE:
Reverse merger costs 606,621 -- --
Interest expense 326,844 224,677 71,048
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES (944,381) 147,734 180,682
PROVISION FOR INCOME TAXES (61,134) -- --
------------ ------------ ------------
NET INCOME (LOSS) $ (1,005,515) $ 147,734 $ 180,682
------------ ============ ============
PRO FORMA INCOME TAX AND NET INCOME (LOSS):
Net income (loss) before pro forma income taxes $ (1,005,515) $ 147,734 $ 180,684
Pro forma income tax benefit (expense) (unaudited) 214,000 (58,000) (68,000)
------------ ------------ ------------
PRO FORMA NET INCOME (LOSS) (unaudited) $ (791,515) $ 89,734 $ 112,682
============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE:
Basic $ (.34) $ .04 $ .04
============ ============ ============
Diluted $ (.34) $ .04 $ .04
============ ============ ============
PRO FORMA NET INCOME (LOSS) PER COMMON SHARE (unaudited):
Basic $ (.27) $ .03 $ .03
============ ============ ============
Diluted $ (.27) $ .03 $ .03
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic $ 2,971,242 $ 3,415,298 $ 4,020,567
============ ============ ============
Diluted $ 2,971,242 $ 3,415,298 $ 4,020,567
============ ============ ============
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-4
CATALYST LIGHTING GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002, AND
FOR THE YEAR ENDED SEPTEMBER 30, 2003
COMMON STOCK ADDITIONAL
-------------------------- PAID-IN RETAINED STOCK-HOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
----------- ----------- ----------- ----------- -----------
BALANCE, January 1, 2002 4,020,567 $ 40,206 $ 1,159,794 $ 334,764 $ 1,534,764
Sale of equity interest 1,460,806 14,608 640,392 -- 655,000
Redemption of equity interest (2,680,378) (26,804) (1,173,196) -- (1,200,000)
Net income -- -- -- 147,734 147,734
----------- ----------- ----------- ----------- -----------
BALANCE, September 30, 2002 2,800,995 28,010 626,990 482,498 1,137,498
Issuance of shares in reverse merger 200,000 2,000 (1,200) -- 800
Common stock issued for services 200,000 2,000 386,000 -- 388,000
Retirement of long term debt by conversion to
equity interest 190,373 1,904 373,096 -- 375,000
Warrants issued as consideration for debt -- -- 70,098 -- 70,098
Net loss -- -- -- (1,005,515) (1,005,515)
----------- ----------- ----------- ----------- -----------
BALANCE, September 30, 2003 3,391,368 $ 33,914 $ 1,454,984 $ (523,017) $ 965,881
=========== =========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-5
CATALYST LIGHTING GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR NINE
ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,005,515) $ 147,734
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Amortization of debt discount 35,449 --
Loss on sale of property and equipment 17,768 --
Depreciation and amortization 29,648 31,182
Common stock issuance for services 388,000 --
Allowance for bad debt -- 32,406
Change in operating assets and liabilities:
Trade receivables, related and other (1,192,666) (813,817)
Inventories (459,097) 34,068
Prepaid expenses and other (29,473) 21,938
Deferred taxes current (47,699) --
Other assets 2,018 --
Deferred taxes long term 108,833 --
Accounts payable 1,151,820 720,595
Other accrued liabilities 103,393 223,004
----------- -----------
Net cash provided by (used in) operating activities (897,521) 397,110
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash assumed in acquisition 45,000 --
Purchase of property and equipment (28,740) (74,307)
----------- -----------
Net cash used in investing activities 16,260 (74,307)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in revolving note payable 985,497 (99,276)
Proceeds from issuance of long-term debt -- 546,000
Payments on short-term and long-term notes payable (7,645) (224,527)
Sale of ownership interest -- 655,000
Redemption of equity interest -- (1,200,000)
----------- -----------
Net cash provided by (used in) financing activities 977,852 (322,803)
----------- -----------
NET CHANGE IN CASH 96,591 --
CASH, at beginning of period -- --
----------- -----------
CASH, at end of period $ 96,591 $ --
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 326,020 $ 240,692
=========== ===========
SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Conversion of long-term debt to equity interest $ 375,000 $ --
=========== ===========
Issuance of common stock for acquisition $ 800 $ --
=========== ===========
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-6
CATALYST LIGHTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES:
Nature of Operations - Catalyst Lighting Group, Inc., located in Fort
Worth, Texas, sells sports and area lighting poles to distributors
throughout the United States of America. See Note 2 for a description of
a merger between Catalyst Lighting Group, Inc. and Whitco Company, LLP
(Whitco LLP) during fiscal 2003. (Whitco LLP, prior to the merger with
Catalyst Lighting Group, Inc. in August 2003 and Catalyst Lighting
Group, Inc. after the merger are referred to herein as the Company.)
Change in Year End - Effective January 1, 2002, the Company changed its
year end from December 31 to September 30.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary
Whitco Company ("Whitco"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
Liquidity and Basis of Presentation - At September 30, 2003, the Company
had a working capital deficit of $873,651. The Company also incurred a
net loss for fiscal 2003 of $1,005,515 and was not in compliance with
its debt covenants as of September 30, 2003, as described in Note 4. The
bank could therefore require repayment on its note.
Management of the Company believes that many of the costs incurred in
fiscal 2003 related to the merger with Wentworth III will not be
incurred in the future and that the Company will return to
profitability. The Company also believes its bank will not call its note
in a manner which would adversely affect the Company. The Company is
also pursuing additional equity through a public offering of its common
stock. The proceeds will be used to pay down subordinated debt, provide
working capital, and product development. If the Company does not raise
additional equity capital sufficient to provide for positive working
capital and is unable to return in the near term to profitability, it
may be required to curtail future operations and/or liquidate assets or
enter into credit arrangements on less than favorable terms than would
normally be expected to provide for future liquidity.
Inventories - Inventories are stated at the lower of cost or market,
determined under the first-in, first-out method.
Cost of Sales - Cost of sales consists of the actual cost of purchased
parts, related in-bound shipping charges and out-bound freight costs.
Net freight charges totaled $205,334 and $36,466 for the year ended
September 30, 2003 and the nine months ended September 30, 2002.
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:
Office furniture, machinery and equipment 7 years
F-7
CATALYST LIGHTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation expense for the year ended September 30, 2003 and for the
nine months ended September 30, 2002 was $29,650 and $23,910,
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.
Goodwill - 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 (in the fourth quarter)
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.
The Company completed the goodwill impairment test required by SFAS 142
as of September 30, 2003 and no impairment charges were necessary. In
completing this assessment, the Company compared the estimated fair
value to the current carrying value of goodwill. The fair value was
derived using an income based analysis using an average EBIT (earnings
before interest and taxes) for the two fiscal years preceding 2003 as a
more representative measure of normal earnings power which excludes
non-recurring expenses associated with going public.
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. State minimum taxes are expensed as incurred.
Prior to the reverse merger between Catalyst Lighting Group, Inc.
(formerly Wentworth III, Inc.) and Whitco Company, LLP (see Note 2),
income taxes related to Whitco Company, LLP were generally the
responsibility of the members. The Company has included unaudited
estimated pro forma taxes as if Whitco LLP was a C-corporation prior to
its merger with Wentworth III and the resulting pro forma net income
(loss) in the statements of operations.
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.
F-8
CATALYST LIGHTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Receivables and Credit Policies - Trade receivables consist of
uncollateralized customer obligations due under normal trade terms
requiring payment within 30 days of the invoice date, with the exception
of certain OEM customers who mandate extended terms. Past due
receivables do not bear interest. Payments on trade receivables are
applied to the earliest unpaid invoices. Management reviews trade
receivables periodically and reduces the carrying amount by a valuation
allowance that reflects management's best estimate of the amount that
may not be collectable.
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, 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 stock-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 options granted to employees is measured as the
excess, if any, of the market price of the Company's common stock at the
measurement date (generally, the date of grant) over the amount an
employee must pay to acquire the common stock.
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 stock-based
compensation for employees but is subject to the pro forma disclosure
requirements.
F-9
CATALYST LIGHTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SFAS No. 123 requires the Company to provide pro forma information
regarding net income as if compensation costs for the Company's option
plans and other 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 award at the grant date by using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
September 30, September 30,
2003 2002
------------- -------------
Dividend yield 0% 0%
Volatility** 0% 0%
Risk free interest rate 3.83% 3.61%
Expected life 10 years 10 years
** Volatility is assumed to be 0% for options issued to
employees prior to the Company going public in a reverse
merger (see Note 2)
Under the accounting provisions of SFAS No. 123, there was no effect to
the Company's net income for the year ended September 30, 2003 and the
nine months ended September 30, 2002.
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.
Interim Financial Information - The accompanying interim financial
information for the three months ended December 31, 2001 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 results of operations of the Company for the three months
ended December 31, 2001.
Comprehensive Income (Loss) - Comprehensive income is defined as all
changes in stockholders' equity, 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 periods presented, the Company's comprehensive
loss was the same as its net loss.
F-10
CATALYST LIGHTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impact of Recently Issued Accounting Pronouncements - 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 adoption of FAS 150 did not 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. The
adoption of FIN No. 46 did not have a material impact on its financial
position or results of operations.
F-11
CATALYST LIGHTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. REVERSE MERGER WITH WHITCO LLP:
Effective August 27, 2003, Wentworth III merged with Whitco LP, a
privately held Texas-based manufacturer and marketer of steel outdoor
lighting pole structures. Whitco LP completed the merger to become a
publicly reporting entity to pursue acquisitions and other strategic
opportunities as well as raise capital from the public markets. Whitco
LLP's management and board assumed significant majority control of
Wentworth III through a merger structure whereby Whitco LLP became a
wholly-owned subsidiary of Wentworth III, Inc. Subsequent to the merger,
Wentworth III changed its name to Catalyst Lighting Group, Inc. For
financial statement purposes, this transaction has been treated as a
reverse merger, whereby Whitco LLP is considered the acquiring company.
200,000 shares of the Company's common stock were effectively issued to
the shareholders of Wentworth III in the merger. The ownership units of
Whitco LLP outstanding prior to the merger have been converted to common
stock and treated as outstanding as of the beginning of the periods
presented. The results of operations of Catalyst Lighting Group, Inc.
are included in the Consolidated Statements of Operations for the period
from August 28, 2003 to September 30, 2003.
As a result of the reverse merger with a shell company, the value
assigned to the assets and liabilities was their fair value, which
approximated its historical basis. The following table summarizes the
values of the tangible assets and liabilities assumed at August 27,
2003, the date of acquisition:
Cash $45,000
Current liabilities 45,000
-------
Net assets acquired $ --
=======
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 the Company's common stock. The son of
a shareholder and director of the Company 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 the Company as its investment banker.
F-12
CATALYST LIGHTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Combined Results of Operations - The following pro forma
combined results of operations for the twelve and nine months ended
September 30, 2003 and 2002, respectively, have been prepared as though
the reverse merger with Whitco LLP had occurred as of the beginning of
the periods presented. This pro forma financial information does not
purport to be indicative of the results of operations that would have
been attained had the acquisitions been made as of January 1, 2002 and
October 1, 2002 or of results of operations that may occur in the
future:
---------------------------------------------------------------------------------------------------
For the Nine For the Nine
Months Ended Months Ended
September 30, September 30,
2003 2002
---------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
---------------------------------------------------------------------------------------------------
Net sales $ 15,758,571 $ 10,243,036
---------------------------------------------------------------------------------------------------
Net income (loss) before pro forma income tax (1,027,962) 144,883
---------------------------------------------------------------------------------------------------
Net income (loss) after pro forma income tax (805,634) 87,941
---------------------------------------------------------------------------------------------------
Income (loss) per share (diluted) before pro forma (0.35) 0.04
income tax
---------------------------------------------------------------------------------------------------
Income (loss) per share (diluted) after pro forma
income tax (0.27) 0.03
---------------------------------------------------------------------------------------------------
3. INVENTORIES:
Inventories are comprised of the following:
--------------------------------------------------------------------------------
September 30, 2003
--------------------------------------------------------------------------------
Raw materials $ 1,096,952
--------------------------------------------------------------------------------
Work in process 238,098
--------------------------------------------------------------------------------
Finished goods 40,778
--------------------------------------------------------------------------------
1,375,820
--------------------------------------------------------------------------------
Less reserve (64,698)
-----------
--------------------------------------------------------------------------------
$ 1,311,130
-----------
--------------------------------------------------------------------------------
4. 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 5.5% at September
30, 2003) 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 $2,072,522 at September 30, 2003,
which exceeded the borrowing limit.
F-13
CATALYST LIGHTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 September 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 stockholders. 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.
5. LONG-TERM DEBT:
Long-term debt at year end consists of the following:
------------------------------------------------------------------------------------------------------------------
September 30,
2003
------------------------------------------------------------------------------------------------------------------
Noninterest-bearing note payable to an individual, discounted at 6.3%
(unamortized discount of $38,517 at September 30, 2003),
payable in annual installments of $217,851 (a). $ 397,183
------------------------------------------------------------------------------------------------------------------
Noninterest-bearing note payable to an individual, discounted at 6.22% (unamortized discount
of $13,462 at September 30, 2003), payable in monthly installments of $7,375 (a). 146,389
------------------------------------------------------------------------------------------------------------------
Note payable to an entity, principal due July 31, 2005, interest payable monthly at a fixed
rate of 15% (b). 700,000
------------------------------------------------------------------------------------------------------------------
Subordinated note payable to a former owner of Whitco LLP, due April 30, 2007, rate 15%, unsecured. 150,000
------------------------------------------------------------------------------------------------------------------
Note payable to an entity related to a stockholder, principal and 10% interest due on
January 7, 2004 (unamortized discount of $35,449 at September 30, 2003) (c). 214,551
------------------------------------------------------------------------------------------------------------------
Subordinated note payable to a stockholder, due April 30, 2007, rate 15%, unsecured. 20,000
------------------------------------------------------------------------------------------------------------------
Subordinated note payable to a stockholder, due April 30, 2007, rate 15%, unsecured. 50,000
-----------
------------------------------------------------------------------------------------------------------------------
1,678,123
------------------------------------------------------------------------------------------------------------------
Less current maturities (524,134)
-----------
------------------------------------------------------------------------------------------------------------------
$ 1,153,989
------------------------------------------------------------------------------------------------------------------
F-14
CATALYST LIGHTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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) On August 6, 2003, Whitco Company LLP received a bridge loan of
$250,000 from Keating Reverse Merger Fund ("Lender"). 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 the Company 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.
Aggregate annual maturities of long-term debt at September 30, 2003, not
including the related discounts, are as follows:
---------------------------------------------------------------------------
2004 $ 567,879
---------------------------------------------------------------------------
2005 977,672
---------------------------------------------------------------------------
2006 --
---------------------------------------------------------------------------
2007 220,000
----------
---------------------------------------------------------------------------
$1,765,551
==========
---------------------------------------------------------------------------
During the year ended September 30, 2003 and the nine months ended
September 30, 2002, the Company had $33,416 and $27,875, respectively,
of accrued interest expense on notes due to related parties.
6. MAJOR CUSTOMERS, MAJOR SALES AGENCIES AND SIGNIFICANT CONCENTRATIONS:
During the year ended September 30, 2003 and the nine months ended
September 30, 2002, one customer accounted for more than 10% of the
Company's sales, totaling 16% and 14%, respectively. The Company grants
lighting agencies the exclusive right to sell the Company's products in
given geographical locations. During the year ended September 30, 2003
and the nine months ended September 30, 2002, one agency accounted for
more than 10% of the Company's sales, totaling 16% and 10%,
respectively.
During the year ended September 30, 2003 and the nine months ended
September 30, 2002, 45% and 45% 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 $1,060,484 as of September 30, 2003.
F-15
CATALYST LIGHTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. STOCKHOLDERS' EQUITY:
Equity Transactions - 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 September 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.
Pursuant to a redemption in May 2002, the Company effectively purchased
1,460,806 shares of common stock for $1,200,000 from two of the three
owners. To finance the redemption, the Company issued 1,460,806 common
shares for $655,000 and $545,000 in notes payable to the then remaining
owner, 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.
See Notes 2 and 5 for additional equity transactions.
Option Plans - In June 2000, the Company began issuing options for the
purchase of common stock to certain key employees. Due to the reverse
merger with Wentworth III, all options previously reported in units have
been converted into options for the purchase of common stock.
Approximately 808,632 options have been issued through September 30,
2003 and there remains 691,368 options that can be issued under the
plan.
Following is a summary of option activity:
Range of Weighted
Employee Exercise Prices Average
Options ------------------------- Exercise
Outstanding Low High Price
---------- ---------- ---------- ----------
Balances, January 1, 2002 1,005,142 $ .30 $ .30 $ .30
Granted 338,397 .86 .86 .86
Terminated/Canceled (653,342) .30 .30 .30
---------- ---------- ---------- ----------
Balances, September 30, 2002 690,197 .30 .86 .58
Granted 118,435 .86 .86 .86
---------- ---------- ---------- ----------
Balances, September 30, 2003 808,632 $ .30 $ .86 $ .62
========== ========== ========== ==========
Vested options 552,657 $ .30 $ .86 $ .51
========== ========== ========== ==========
F-16
CATALYST LIGHTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
If not previously exercised, options expire as follows:
Weighted
Average
Year Ending Number of Exercise
September 30, Shares Price
------------- --------- ----------
2010 423,836 $ .40
2011 75,386 .86
2012 309,410 .86
--------
808,632
========
All options were granted at exercise prices that approximated market on
the dates of the grant. The weighted average per share fair value of
options granted during fiscal year 2003 and 2002 was $.86 and $.86.
Stock Purchase Warrants - The Company has granted warrants, which are
summarized as follows for the year ended September 30, 2003:
Weighted
Average
Warrants Exercise
Outstanding Price
----------- ----------
Balances, September 30, 2002 -- $ --
Granted 125,000 2.00
Exercised -- --
----------- --------
Balances, September 30, 2003 125,000 $ 2.00
=========== ========
Warrants outstanding at September 30, 2003 have an exercise price of
$2.00 and expire on July 7, 2008. As warrants were granted as additional
consideration for the issuance of debt, the Company recorded a discount
of $70,898. A total of $35,499 was amortized to interest expense during
the year ended September 30, 2003.
8. RELATED PARTY TRANSACTIONS:
During the year ended September 30, 2003 and the nine months ended
September 30, 2002, the Company paid $60,800 and $24,000, respectively,
for accounting and administrative services to an entity related through
common ownership through May 2002.
F-17
CATALYST LIGHTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended September 30, 2003 and the nine months ended
September 30, 2002, the Company had sales of $423,760 and $266,580,
respectively, to an entity whose principal owner is the brother of an
employee of the Company. Accounts receivable from this related entity
were $92,305 at September 30, 2003.
See Notes 2, 5 and 11 for other related party transactions.
9. 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,
2004 $ 16,086
2005 10,590
---------
$ 26,676
=========
Rent expense for the year ended September 30, 2003 and the nine months
ended September 30, 2002 was $46,882 and $39,364, respectively.
10. INCOME TAXES:
The Company has a net operating loss carryforward of approximately
$12,000 available to offset taxable income through the years 2021 and
2022. A portion of the net operating loss may be subject to Section 382
limitations.
F-18
CATALYST LIGHTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the net deferred tax assets and liabilities recognized
as of September 30, 2003 are as follows:
Deferred tax assets (liabilities):
Current -
Allowance for bad debts $ 20,000
Inventory reserve 24,000
Warranty reserve 4,000
---------
Current net deferred tax assets $ 48,000
=========
Non-current -
Net operating loss carryforwards 4,000
Property and equipment (22,000)
Goodwill and intangibles (91,000)
---------
Net non-current deferred tax liability $(109,000)
=========
The difference between income taxes and the provision for income taxes
for the year Ended September 30, 2003 relates to the following:
------------------------------------------------------------------------------
Benefit provision at federal statutory rate $(321,000)
------------------------------------------------------------------------------
State income tax benefit, net of Federal income tax benefit (30,000)
------------------------------------------------------------------------------
Non-deductible legal fees associated with merger 185,000
------------------------------------------------------------------------------
Tax effects of Whitco LLP losses prior to merger 161,000
------------------------------------------------------------------------------
Other 66,134
------------------------------------------------------------------------------
$ 61,134
------------------------------------------------------------------------------
11. SUBSEQUENT EVENTS:
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 in a self-underwritten
offering (the Offering). The Company may engage broker-dealers to assist
with the offering and may receive up to a 10% cash placement fee, a 3%
expense allowance of securities placed by such broker dealer in the
Offering and five-year common stock purchase warrants entitling such
broker-dealer to purchase up to 10% of the securities sold by such
broker-dealer in the Offering, at an exercise price of 125% of the per
share price of the Offering.
Keating Investments was the investment advisor for the reverse merger
and will be receiving an investment banking fee of $100,000, which is
due in 10 monthly payments of $10,000, but it is not accrued as it is
contingent upon the Company's common stock 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.
F-19
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.
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 ............................................... $ 85,000
Accounting fees .......................................... 30,000
Printing costs ........................................... 12,000
Transfer agent fee ....................................... 10,000
Miscellaneous fees and expenses .......................... 28,000
---------
Total expenses ...................................... $ 165,000
=========
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 (1,463,040 equivalent common shares) 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:
Total Purchase Partner Units Equivalent
Name Amount Purchased Common Stock
based on merger exchange
---- ------ --------- ------------
Celestine C. Depenbusch $ 200,000 133 1/3 446,729
Larry D. Doskocil, Trustee of the
Larry D. Doskocil Living Trust
UAD February 20, 1986, as amended $ 250,000 166 2/3 558,412
John and Jacqueline Middelkamp, JTWROS $ 50,000 33 1/3 111,683
June M. Ochsner, Trustee of the June M
Ochsner Revocable Trust dated
October 21, 1997 $ 50,000 33 1/3 111,683
Dennis H. Depenbusch $ 1,500 1 3,350
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 69 231,183
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
Partnership Equivalent
Name Total Units Issued Common Stock
Celestine C. Depenbusch $ 50,000 7.56 25,330
Larry D. Doskocil, Trustee of
the Larry D. Doskocil Living
Trust UAD February 20,
1986, as amended $250,000 37.78 126,581
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 38,462
Additionally, Whitco granted a total of 241.3485 (808.632 equivalent options in
the merger exchange) 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 Exercise Exercise
Issue Granted Pursuant Price Per Vesting Eqivalent Price Per
Name Date Period to Option Unit Common Stock Options equivalent option
---- ---- ------ --------- ---- -------------------- -----
Kip Pritchard 6/30/00 0 104.5 $ 1,000 350,125 $ .30
Kip Pritchard 6/30/00 0 .5 $ 1,000 1,675 $ .86
Mark Wendt (a) 6/30/00 5 years 104.5 $ 1,000
Tom Lach 10/30/00 5 years 22 $ 2,913 73,710 $ .86
Kevin Medlin 10/1/01 5 years 22 $ 2,916 73,710 $ .86
Henry Glover 1/1/02 5 years 57 $ 2,916 190,977 $ .86
Henry Glover 12/31/02 0 17.5 $ 2,890 58,633 $ .86
Tom Lach 12/31/02 0 7 $ 2,890 23,453 $ .86
Kevin Medlin 12/31/02 0 7 $ 2,890 23,453 $ .86
Ben Mosqueda 12/31/02 0 3.5 $ 2,890 11,727 $ .86
(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 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.
* 10.2 Form of Placement Agent Agreement
* 23.1 Consent of Hein & Associates LLP
*** 23.5 Consent of Feldman Weinstein LLP
-----------
* Filed herewith
** Previously filed.
*** Incorporated in Exhibit 5.1
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.
II-5
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 January 23, 2004
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 January 23, 2004:
/s/ Dennis H. Depenbusch
------------------------------- Dated: January 23, 2004
Dennis H. Depenbusch, Chief
Executive Officer, Principal
Executive, Financial and
Accounting Officer
/s/ Henry Glover
------------------------------- Dated: January 23, 2004
Henry Glover, President and Director
/s/ Kevin R. Keating
------------------------------- Dated: January 23, 2004
Kevin R. Keating, Director
/s/ Mary Titus
------------------------------- Dated: January 23, 2004
Mary Titus, Director
/s/ Tracy B. Taylor
------------------------------- Dated: January 23, 2004
Tracy B. Taylor, Director