UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
August 27, 2003
-------------------
Date of Report (Date of earliest reported event)
Catalyst Lighting Group, Inc.
(formerly Wentworth III, Inc.)
------------------------------------------------------
(Exact name of registrant as specified in its chapter)
Delaware 333-75044 84-1588927
---------------------------- ----------------------- ----------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
6777 Camp Bowie Boulevard
Suite 233, Forth Worth, TX 76116
------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(800) 433-7753
----------------------------
Registrant's telephone number, including area code
Wentworth III, Inc.
650 South Cherry Street, Suite 420, Denver, CO 80246
(303) 320-1870
------------------------------------------------------------
(Former name or former address and telephone number, if changed since last
report)
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
As of February 12, 2003, Catalyst Lighting Group, Inc., formerly known
as Wentworth III, Inc. (the "Registrant" or the "Company") and Whitco Company,
LP (as successor in interest to Whitco Company, L.L.P.) ("Whitco") and all of
the partners of Whitco (the "Partners") entered into a Securities Exchange
Agreement ("Merger Agreement") pursuant to which (a) the Partners exchanged all
issued and outstanding partnership units of Whitco ("Partnership Units") for,
and (b) holders of options to purchase partnership units of Whitco exchanged
such options (the "Options") for options to purchase, an aggregate of 3,800,000
shares of the common stock, par value $.001 per share ("Common Stock"), of the
Registrant (the "Merger"). On August 27, 2003, the transactions contemplated by
the Merger Agreement were consummated and the Partnership Units and Options were
exchanged for Common Stock representing approximately 88% of the outstanding
shares of Common Stock of the Registrant on a fully diluted basis.
As part of the Merger, one of the directors of the Registrant, Spencer
Browne, resigned and the size of the board of directors of the Registrant (the
"Board") was increased to three and Dennis H. Depenbusch and Henry Glover were
named to fill the vacancies on the Board. On September 4, 2003, the size of the
Board was increased to five members and Mary Titus and Tracy Taylor were added
as directors to fill those vacancies.
The following table sets forth certain information after giving effect
to the issuance of securities as part of the closing of the Merger with respect
to beneficial ownership of the outstanding shares of Common Stock by the
Registrant's directors, executive officers and each person known by the
Registrant to own in excess of 5% of the outstanding shares of Common Stock and
the directors and executive officers as a group. Unless otherwise noted, each
person below has personal and sole beneficial ownership of the shares of Common
Stock:
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%
Kip Pritchard (10) ......................... 350,125 9.35%
All executive officers and
directors as a group ....................... 1,797,925 53.0%
2
-----------
(1) Mr. Keating is a member of our Board of Directors.
(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.
(7) Mr. Taylor is a member of our Board of Directors.
(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.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
As described in Item 1 above, pursuant to the Merger Agreement, the
Registrant acquired all of the Partnership Units in exchange for shares of
Common Stock, whereupon Whitco became a wholly-owned subsidiary of the
Registrant. After giving effect to the Merger, the former partners of Whitco now
own approximately 88% of the outstanding shares of Common Stock of the
Registrant of a fully diluted basis.
Whitco is a nationwide marketer and distributor of steel and aluminum
outdoor lighting poles. Founded in 1969, Whitco generates revenue through the
sale of poles directly to original equipment manufacturers and indirectly to
other third parties through its own sales representatives. Whitco provides
design services, assembly and integration, as well as other value added
services.
ITEM 5. OTHER EVENTS AND REGULATION FD DISCLOSURE
On September 3, 2003, the Registrant completed a merger with Catalyst
Lighting Group, Inc., its wholly-owned subsidiary. The subsidiary had no assets.
As a result of this transaction, and in accordance with Section 253(b) of the
Delaware General Corporation Law, Registrant changed its name from Wentworth
III, Inc. to Catalyst Lighting Group, Inc.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements of Businesses Acquired.
3
b. Pro Forma Financial Information.
c. Exhibits:
2.1 Securities Exchange Agreement, dated as of February 12, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: September 8, 2003 Catalyst Lighting Group, Inc.
(formerly Wentworth III, Inc.)
-------------------------------
(Registrant)
/s/ Dennis H. Depenbusch
-------------------------------
Dennis H. Depenbusch
President
4
INDEX TO FINANCIAL STATEMENTS
PAGE
----
WHITCO COMPANY
Independent Auditor's Report....................................................................F-2
Report of Independent Certified Public Accountants..............................................F-3
Balance Sheets - June 30, 2003 (unaudited) and September 30, 2002...............................F-4
Statements of Operations - For the Nine Months Ended June 30, 2003 and 2002 (unaudited)
Three Months Ended December 31, 2002 (unaudited), Nine Months Ended September 30, 2002
and Year Ended December 31, 2001............................................................F-5
Statements of Partners' Equity - For the Year Ended December 31, 2001, For the Nine Months
Ended September 30, 2002, and For the Nine Months Ended June 30, 2003 (unaudited)...........F-6
Statements of Cash Flows - For the Nine Months Ended June 30, 2003 and 2002 (unaudited),
Nine Months Ended September 30, 2002 and Year Ended December 31, 2001.......................F-7
Notes to Financial Statements...................................................................F-8
PRO FORMA FINANCIAL INFORMATION
Introduction....................................................................................F-17
Pro Forma Combining, Condensed Balance Sheet (unaudited)........................................F-18
Pro Forma Combining, Condensed Statement of Operations (unaudited)..............................F-19
Pro Forma Notes to Combining, Condensed Financial Information...................................F-21
INDEPENDENT AUDITOR'S REPORT
To the Partners
Whitco Company, LLP
Hutchinson, Kansas
We have audited the accompanying balance sheet of Whitco Company, LLP as of
September 30, 2002, and the related statements of operations, partners' equity,
and cash flows for the nine months then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Whitco Company, LLP as of
September 30, 2002 and the results of its operations and its cash flows for the
nine months then ended, in conformity with accounting principles generally
accepted in the United States of America.
HEIN + ASSOCIATES LLP
Denver, Colorado
December 20, 2002
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Partners
WHITCO COMPANY, LLP
We have audited the accompanying statements of income, partners' equity and cash
flows of Whitco Company, LLP for the year ended December 31, 2001. These
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all material
respects, the results of operations and cash flows of Whitco Company, LLP for
the year ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America.
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
Wichita, Kansas
January 31, 2002
F-3
WHITCO COMPANY, LLP
BALANCE SHEETS
JUNE 30, SEPTEMBER 30,
2003 2002
---------- ----------
(unaudited)
ASSETS
CURRENT ASSETS:
Trade receivables, less allowance for doubtful accounts of $48,456
(unaudited) and $54,442 $2,640,753 $2,280,109
Inventories 1,321,935 852,033
Prepaid expenses and other 25,574 20,029
---------- ----------
Total current assets 3,988,262 3,152,171
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $50,638 (unaudited)
and $51,991 114,074 133,875
OTHER ASSETS:
Goodwill, net of accumulated amortization of $330,151 (unaudited) and $330,151 2,971,362 2,971,362
Other 15,793 17,810
---------- ----------
Total other assets 2,987,155 2,989,172
---------- ----------
$7,089,491 $6,275,218
========== ==========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Revolving note payable $1,673,884 $1,087,025
Current maturities of long-term debt 490,726 257,646
Accounts payable 1,977,446 1,250,935
Other accrued liabilities 693,186 703,543
---------- ----------
Total current liabilities 4,835,242 3,299,149
---------- ----------
LONG-TERM DEBT, less current maturities:
Related party 70,000 446,000
Other 1,140,341 1,392,571
---------- ----------
Total long-term debt 1,210,341 1,838,571
PARTNERS' EQUITY 1,043,908 1,137,498
---------- ----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $7,089,491 $6,275,218
========== ==========
See accompanying notes to these financial statements.
F-4
WHITCO COMPANY, LLP
STATEMENTS OF OPERATIONS
NINE
NINE MONTHS NINE MONTHS THREE MONTHS MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
2003 2002 2002 2002 2001
-------------- --------------- -------------- -------------- --------------
(unaudited) (unaudited) (unaudited)
SALES $ 10,644,295 $ 9,600,503 $ 3,282,406 $ 10,243,036 $ 11,784,438
COST OF SALES 7,277,750 6,543,698 2,172,735 7,169,790 7,887,188
------------ ------------ ------------ ------------ ------------
GROSS MARGIN ON SALES 3,366,545 3,056,805 1,109,671 3,073,246 3,897,250
OTHER OPERATING COSTS AND EXPENSES:
General, selling and administrative expenses 3,614,158 2,633,603 1,104,146 2,700,835 3,053,662
Amortization of goodwill - - - - 229,797
------------ ------------ ------------ ------------ ------------
3,614,158 2,633,603 1,104,146 2,700,835 3,283,459
------------ ------------ ------------ ------------ ------------
INCOME FROM OPERATIONS (247,613) 423,202 5,525 372,411 613,791
OTHER EXPENSE:
Interest expense 220,977 209,099 71,519 224,677 292,138
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (468,590) $ 214,103 $ (65,994) $ 147,734 $ 321,653
============= ============ ============ ============ ============
PRO FORMA INCOME TAXES AND NET INCOME
(LOSS): (unaudited)
INCOME (LOSS) BEFORE PRO FORMA INCOME TAXES $ (468,590) $ 214,103 $ (65,994) $ 147,734 $ 321,653
PRO FORMA INCOME TAXES 169,250 (82,794) 22,838 (58,062) (123,122)
------------ ------------- ------------ ------------ ------------
PRO FORMA NET INCOME (LOSS) $ (299,340) $ 131,309 $ (43,156) $ 89,672 $ 198,531
============= ============ ============ ============ ============
See accompanying notes to these financial statements.
F-5
WHITCO COMPANY, LLP
STATEMENTS OF PARTNERS' EQUITY
For the Year Ended December 31, 2001,
For the Nine Months Ended September 30, 2002, and
For the Nine Months Ended June 30, 2003 (Unaudited)
PARTNERS' RETAINED PARTNERS'
UNITS CONTRIBUTIONS EARNINGS EQUITY
------------- ----------------- ----------------- ---------------
BALANCE, January 1, 2001 1,200 $ 1,200,000 $ 306,711 $ 1,506,711
Partners' distributions - - (293,600) (293,600)
Net income - - 321,653 321,653
---------- --------------- --------------- ---------------
BALANCE, December 31, 2001 1,200 1,200,000 334,764 1,534,764
Sale of partnership interest 436 655,000 - 655,000
Redemption of partners' interest (800) (1,200,000) - (1,200,000)
Net income - - 147,734 147,734
---------- --------------- --------------- ---------------
BALANCE, September 30, 2002 836 655,000 482,498 1,137,498
Retirement of long term debt by conversion
to partnership interest (unaudited) 57 375,000 - 375,000
Net loss (unaudited) - - (468,590) (468,590)
---------- --------------- ---------------- ----------------
BALANCE, June 30, 2003 (unaudited) 893 $ 1,030,000 $ 13,908 $ 1,043,908
========== =============== =============== ===============
See accompanying notes to these financial statements.
F-6
WHITCO COMPANY, LLP
STATEMENTS OF CASH FLOWS
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED YEAR ENDED
JUNE 30, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2003 2002 2002 2001
----------- ----------- ----------- -----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (468,590) $ 214,103 $ 147,734 $ 321,653
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Loss on sale of property and equipment 17,768
Depreciation and amortization 23,896 77,562 31,182 249,415
Allowance for bad debt -- -- 32,406 9,048
Change in operating assets and liabilities:
Trade receivables (360,643) (1,003,612) (813,817) (2,989)
Inventories (469,902) 387,721 34,068 (190,183)
Prepaid expenses and other (5,545) 8,403 21,938 (14,849)
Accounts payable 726,510 (116,846) 720,595 (219,257)
Other accrued liabilities (10,357) 176,496 223,004 174,631
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities (546,863) (256,173) 397,110 327,469
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (19,846) (31,930) (74,307) (26,934)
----------- ----------- ----------- -----------
Net cash used in investing activities (19,846) (31,930) (74,307) (26,934)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in revolving note payable 586,859 511,791 (99,276) 213,565
Proceeds from issuance of long-term debt -- -- 546,000 --
Payments on short-term and long-term notes payable (20,150) (223,685) (224,527) (228,644)
Sale of partnership interest -- -- 655,000 --
Partners' distributions -- -- -- (293,600)
Redemption of partners' interest -- -- (1,200,000) --
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities 566,709 288,106 (322,803) (308,679)
----------- ----------- ----------- -----------
NET CHANGE IN CASH
-- 3 -- (8,144)
CASH, at beginning of period -- (3) -- 8,144
----------- ----------- ----------- -----------
CASH, at end of period $ -- $ -- $ -- $ --
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 229,133 $ 211,863 $ 240,692 $ 290,089
=========== =========== =========== ===========
SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Conversion of long-term debt to partnership interest $ 375,000 $ -- $ -- $ --
=========== =========== =========== ===========
Conversion of partnership interest to long-term debt $ -- $ 545,000 $ -- $ --
=========== =========== =========== ===========
See accompanying notes to these financial statements.
F-7
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
SUMMARY OF ACCOUNTING POLICIES:
Nature of Operations - Whitco Company, LLP (the Company) was formed as a
Texas limited liability partnership on June 27, 2000. The Company,
located in Fort Worth, Texas, sells sports and area lighting poles to
distributors throughout the United States of America.
Pursuant to a redemption in May 2002, the Company purchased 800
partnership units for $1,200,000 (i.e., $1,500 per unit) from two of the
three members. To finance the redemption of these partnership units, the
Company issued 436 partnership units for $655,000 (at $1,500 per unit)
and $545,000 in notes payable to the then remaining member, persons
related to him and a limited number of new investors. The change in
ownership, however, did not result in a change in control or management,
therefore all transactions were recorded at cost.
Change in Year End - Effective January 1, 2002, the Company changed its
year end from December 31 to September 30.
Inventories - Inventories are stated at the lower of cost or market,
determined under the first-in, first-out method.
Property and Equipment - Property and equipment are stated at cost.
Depreciation and amortization of property and equipment is provided
using the modified straight-line method over the following estimated
useful lives:
Vehicles and office furniture and equipment 5 years
Depreciation expense for the nine months ended June 30, 2003 and 2002,
for the nine months ended September 30, 2002 and for the year ended
December 31, 2001 was $21,876, $15,265, $23,910 and $5,461,
respectively. Maintenance, repairs and renewals which neither materially
add to the value of property and equipment nor appreciably prolong its
life are charged to operations as incurred. Gains or losses on disposals
of property and equipment are included in income.
Impairment of Long-Lived Assets - Management of the Company assesses
impairment whenever events or changes in circumstances indicate that the
carrying amount of a long-lived asset may not be recoverable. If the net
carrying value exceeds the net cash flows, then impairment will be
recognized to reduce the carrying value to the estimated fair value.
F-8
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
Acquisition and Goodwill - On June 30, 2000, the Company acquired the
operating assets and liabilities of Whitco Sales, Inc. The purchase
price was allocated to the assets acquired and liabilities assumed based
on their estimated fair value. The fair value of assets acquired and
liabilities assumed was as follows:
Receivables $ 1,560,576
Inventories 585,901
Property and equipment 64,000
Accounts payable (633,922)
Other accrued liabilities (220,931)
Goodwill 3,301,513
---------------
Fair value of net assets acquired $ 4,657,137
===============
The purchase was paid for as follows:
Cash paid ($2,000 - June 30, 2000 and
$2,789,213 - August 1, 2000) $ 2,791,213
Payable to seller upon collection of specific accounts receivable 578,665
Noninterest-bearing notes payable to Seller, net of discount of $244,504 1,287,259
---------------
Purchase price $ 4,657,137
===============
During fiscal 2001, the Company amortized goodwill using a fifteen-year
life. Beginning January 1, 2002, the Company adopted Statement of
Financial Accounting Standards No. 142 (SFAS 142) "Goodwill and Other
Intangible Assets," and as a result ceased amortizing goodwill. The
Company tests goodwill for impairment annually or on an interim basis if
an event or circumstance occurs between the annual tests that may
indicate impairment of goodwill. Impairment of goodwill will be
recognized in operating results in the period it is identified. Had the
Company recorded amortization expense during the nine months ended June
30, 2003 and the nine months ended September 30, 2002, unaudited pro
forma net income (loss) would have been approximately $(578,640) and
$(25,000), respectively.
F-9
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
Income Taxes - The Company has been organized as a limited liability
partnership. Accordingly, no provision for income taxes has been
provided for in the financial statements since taxable income of the
Company is required to be reported by the respective partners on their
income tax returns. However, the Company has included unaudited
estimated pro forma income taxes and the resulting pro forma net income
(loss) in the statements of income. Pro forma income taxes (tax refund)
were estimated using the effective Federal and state tax rates, as if
the Company was a C-Corporation.
Concentrations of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily
of trade receivables. The Company grants credit to distributors of
sports and area lighting poles located throughout the United States of
America. Collateral is generally not required for the Company's trade
receivables.
Use of Estimates - In preparing financial statements in conformity with
accounting principles generally accepted in the United States of
America, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents - For purposes of the statements of cash flows, the
Company considers all highly liquid investments with a maturity of three
months or less to be cash equivalents. There were no cash equivalents at
September 30, 2002 or June 30, 2003.
Revenue Recognition - The Company recognizes revenue in accordance with
SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements (SAB 101), as amended by SAB 101A and 101B. SAB 101 requires
that four basic criteria must be met before revenue can be recognized:
(1) persuasive evidence of an arrangement exists; (2) delivery has
occurred or services rendered; (3) the fee is fixed and determinable;
and (4) collectibility is reasonably assured. Company product is made to
customer or industry specifications at an agreed upon price as typically
specified in the customer purchase order. Title passes to the customer
at the point of shipment along with all the risks and rewards of
ownership. Customers receive a one-year product warranty for defects in
materials and workmanship providing repair or replacement or refund of
purchase price. The Company provides an accrual as a reserve for
potential warranty costs, which historically have not been significant.
Stock-Based Compensation - The Company accounts for partnership
interest-based compensation for employees using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, compensation cost for partnership options granted to
employees is measured as the excess, if any, of the market price of the
Company's partnership interest at the measurement date (generally, the
date of grant) over the amount an employee must pay to acquire the
partnership interest.
F-10
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
In October 1995, the Financial Accounting Standards Board issued a new
statement titled Accounting for Stock-Based Compensation (SFAS No. 123).
SFAS No. 123 requires that options, warrants, and similar instruments
which are granted to non-employees for goods and services be recorded at
fair value on the grant date. Fair value is generally determined under
an option pricing model using the criteria set forth in SFAS No. 123.
The Company did not adopt SFAS No. 123 to account for partnership
interest-based compensation for employees but is subject to the pro
forma disclosure requirements.
Interim Financial Information - The accompanying interim financial
information as of June 30, 2003 and for the periods ended June 30, 2003
and 2002 and December 31, 2002 has been taken from the Company's books
and records without audit. However, in the opinion of management, such
information includes all adjustments (consisting only of normal
recurring accruals) necessary to fairly present the financial position
as of June 30, 2003 and results of operations of the Company for the
periods ended June 30, 2002 and 2001 and December 31, 2002.
Impact of Recently Issued Accounting Pronouncements - In July 2002, the
FASB issued Statements of Financial Accounting Standards No. 146,
Accounting for Costs Associated with Exit or Disposal Activities (SFAS
146). SFAS 146 requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than at the
date of a commitment to an exit or disposal plan. Examples of costs
covered by SFAS 146 include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS 146
is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. The adoption of SFAS 146 is not expected to
have a material effect on the Company's financial position or results of
its operations.
In August 2002, the FASB issued Statements of Financial Accounting
Standards No. 147, Acquisitions of Certain Financial Institutions (SFAS
147). SFAS 147 requires financial institutions to follow the guidance in
SFAS 141 and SFAS 142 for business combinations and goodwill and
intangible assets, as opposed to the previously applied accounting
literature. This statement also amends SFAS 144 to include in its scope
long-term customer relationship intangible assets of financial
institutions. The provisions of SFAS 147 do not apply to the Company.
In December 2002, the FASB issued Statements of Financial Accounting
Standards No.148, Accounting for Stock-Based Compensation - Transition
and Disclosure - An Amendment of FASB Statement 123 (SFAS 123). For
entities that change their accounting for stock-based compensation from
the intrinsic method to the fair value method under SFAS 123, the fair
value method is to be applied prospectively to those awards granted
after the beginning of the period of adoption (the prospective method).
The amendment permits two additional transition methods for adoption of
the fair value method. In addition to the prospective method, the entity
can choose to either (i) restate all periods presented (retroactive
restatement method) or (ii) recognize compensation cost from the
beginning of the fiscal year of adoption as if the fair value method had
been used to account for awards (modified prospective method). For
fiscal years beginning December 15, 2003, the prospective method will no
longer be allowed. The Company currently accounts for its stock-based
compensation using the intrinsic value method as proscribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to 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.
F-11
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
INVENTORIES:
Inventories are comprised of the following:
June 30, September 30,
2003 2002
------------------- ---------------
(unaudited)
Raw materials $ 1,093,152 $ 580,060
Work in process 176,628 271,973
Finished goods 52,155 -
----------------- ---------------
$ 1,321,935 $ 852,033
================= ===============
REVOLVING NOTE PAYABLE:
The Company has a revolving credit agreement with a bank which bears
interest at the bank's prime rate plus 1.50% (totaling 5.75% and 6.25%
at June 30, 2003 and September 30, 2002) which enables the Company to
borrow up to the lesser of $2,000,000 or the aggregate of 80% of
eligible accounts receivable and 50% of eligible inventory as defined by
the agreement. Borrowings outstanding on the revolving loan were
$1,673,884 and $1,087,025 at June 30, 2003 and September 30, 2002,
respectively.
Borrowings under the revolving credit agreement are collateralized by
essentially all assets of the Company including accounts receivable and
inventory. The agreement requires the Company to maintain certain
financial covenants which include tangible net worth, cash flow coverage
and debt ratios as defined in the agreement. As of June 30, 2003, the
Company was not in compliance with certain financial covenants, whereby
enabling the lender to call the note on demand. The lender is aware of
this non-compliance and the Company does not believe its lender will
initiate any action which would be detrimental to the Company's
liquidity situation. The agreement also limits the amount of additional
third-party borrowings the Company can obtain and the amount of
distributions the Company can pay partners. The agreement is subject to
annual review by the lender who has the right to terminate or change any
of the terms and conditions of the agreement.
LONG-TERM DEBT:
Long-term debt at year end consists of the following:
June 30, September 30,
2003 2002
--------------- ----------------
(unaudited)
Noninterest-bearing note payable to an individual, discounted at 6.3%
(unamortized discount of $47,766 and $75,509 at June 30, 2003 and
September 30, 2002), payable in annual installments of $217,851 (a). $ 613,347 $ 578,043
Noninterest-bearing note payable to an individual, discounted at 6.22%
(unamortized discount of $15,148 and $20,207 at June 30, 2003 and
September
30, 2002, respectively), payable in monthly installments of $7,375 (a) 167,720 222,175
Note payable to an individual with indirect ownership in the partnership,
note was assigned to a nonrelated limited partnership effective December
27, 2001, principal due July 31, 2005, interest payable monthly at a
fixed rate
of 15% (b) 700,000 700,000
Note payable to a family member of a partner, rate of 15%, unsecured (b) (c) - 50,000
Subordinated note payable to a partner, rate 15%, unsecured. (c) - 250,000
Subordinated note payable to a partner, due April 30, 2007, rate 15%,
unsecured. 20,000 20,000
Subordinated note payable to a partner, rate 15%, unsecured. (c) - 76,000
Subordinated note payable to a partner, due April 30, 2007, rate 15%,
unsecured. 50,000 50,000
Subordinated note payable to an individual, due April 30, 2007, rate 15%,
unsecured. 150,000 150,000
------------- ---------------
1,701,067 2,096,218
Less current maturities (490,726) (257,646)
-------------- ---------------
$ 1,210,341 $ 1,838,572
============= ===============
F-12
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
(a) Notes are collateralized by all assets of the Company. The security
interest in inventory and accounts receivable is subordinated to the
revolving bank note and the security interest in all assets is
subordinated to notes marked as (b).
(b) Notes are collateralized by all assets of the Company but are
subordinated to the revolving bank note.
(c) In January 2003, the Company converted three individual notes payable
held by existing members of the partnership into partnership units at
$6,617.38 per unit. The conversion rate was determined based on
"negotiated" best estimate of fair market value of the underlying
partnership units at the conversion date between the parties.
Interest was paid to note holders on the date of conversion.
Aggregate annual maturities of long-term debt at September 30, 2002 are
as follows:
2003 $ 257,646
2004 523,133
2005 1,019,439
2006 -
2007 296,000
---------------
$ 2,096,218
===============
During the nine months ended June 30, 2003 and 2002, the nine months
ended September 30, 2002 and the year ended December 31, 2001, the
Company had $7,875, $15,525, $27,875 and $0, respectively, of interest
expense on notes due to related parties.
MAJOR CUSTOMERS, MAJOR SALES AGENCIES AND SIGNIFICANT CONCENTRATIONS:
During the nine months ended September 30, 2002 and the year ended
December 31, 2001, one customer accounted for more than 10% of the
Company's sales, totaling 14% and 14%, respectively. The Company grants
lighting agencies the exclusive right to sell the Company's products in
given geographical locations. During the nine months ended September 30,
2002, one agency accounted for more than 10% of the Company's sales,
totaling 10%.
During the nine months ended September 30, 2002 and the year ended
December 31, 2001, 45% and 85% of the Company's material and assembly
purchases of lighting poles were from two vendors. Although there are
multiple vendors with which the Company could enter into agreements, the
deterioration or cessation of either relationship could have a material
adverse effect, at least temporarily, on the Company as it attempts to
negotiate agreements with other manufactures of lighting poles. Accounts
payable to these two vendors were $711,862 and $1,149,766 as of
September 30, 2002 and June 30, 2003, respectively.
PARTNERSHIP OPTIONS:
Partnership Option Plans - In June 2000, the partners began issuing
options for the purchase of partnership units to certain key employees.
Approximately 241 units have been issued through June 30, 2003.
F-13
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
Following is a summary of partnership option activity:
Range of Weighted
Employee Exercise Prices Average
Options --------------------------- Exercise
Outstanding Low High Price
----------------- ------------ ------------ --------------
Balances, December 31, 2001 300 $ 1,000 $ 1,000 $ 1,000
Granted 146 2,887 2,887 2,887
Exercised - - - -
Terminated/Canceled (240) 1,000 2,887 1,348
------------ ---------- --------- -----------
Balances, September 30, 2002 206 1,000 2,887 1,931
Granted (unaudited) 35 2,887 2,887 2,887
Exercised (unaudited) - - - -
Terminated/Canceled (unaudited) - - - -
------------ ---------- --------- -----------
Balances, June 30, 2003 (unaudited) 241 $ 1,000 $ 2,887 $ 2,070
============ ========== ========= ===========
Vested options (unaudited) 118 $ 1,000 $ 2,887 $ 1,216
============ ========== ========= ===========
If not previously exercised, options expire as follows:
Weighted
Average
Year Ending Number of Exercise
September 30, Shares Price
------------ ------------------- ------------------
2011 127 $ 1,327
2012 22 2,887
2013 92 2,887
------------
241
============
F-14
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
Proforma Stock-Based Compensation Disclosures - SFAS No. 123 requires the
Company to provide pro forma information regarding net income as if
compensation costs for the Company's partnership option plans and other
partnership interest awards had been determined in accordance with the
fair value based method prescribed in SFAS No. 123. The Company estimates
the fair value of each partnership award at the grant date by using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
June 30, September 30, December 31,
2003 2002 2001
------------------ ------------------ -----------------
(unaudited)
Dividend yield 0% 0% 0%
Volatility 0% 0% 0%
Risk free interest rate 3.83% 3.61% 4.55%
Expected life 10 years 10 years 10 years
Under the accounting provisions of SFAS No. 123, there was no effect to
the Company's net income for the nine months ended September 30, 2002 and
the year ended December 31, 2001.
RELATED PARTY TRANSACTIONS:
During the nine months ended June 30, 2003 and 2002, the nine months
ended September 30, 2002 and for the year ended December 31, 2001, the
Company paid $49,315, $42,000, $24,000 and $12,000, respectively, for
accounting and administrative services to an entity related through
common ownership.
During the nine months ended June 30, 2003 and 2002, the nine months
ended September 30, 2002 and the year ended December 31, 2001, the
Company had sales of $262,223, $311,248, $266,580, and $679,527,
respectively, to an entity whose principal owner is the brother of an
employee of the Company. Accounts receivable from this related entity
were $27,743 and $24,894 at June 30, 2003 and 2002, respectively.
See Note 4 for other related party transactions.
F-15
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
COMMITMENTS:
The Company leases a facility and equipment under operating leases
expiring at various dates through 2005.
The future minimum payments required under these operating leases are as
follows:
Year Ending
September 30,
2003 $ 40,166
2004 6,783
2005 2,220
--------------
$ 49,169
==============
Rent expense for the nine months ended June 30, 2003 and 2002, the nine
months ended September 30, 2002 and the year ended December 31, 2001,
was $34,331, $39,993, $39,364 and $55,525, respectively.
SUBSEQUENT EVENTS:
Subsequent to December 31, 2002, the Company entered into a merger
agreement with Catalyst Lighting Group, Inc. (CLG) (formerly known as
Wentworth III, Inc.). The merger (the Merger) was effective August 27,
2003, after all contingencies had been met. For financial statement
purposes, the Company will be considered the acquiring company. For
legal purposes, however, CLG will remain the surviving entity,
therefore, the combined entity will retain CLG's capital structure and
all the partnerships' units will be converted into common stock of CLG.
On August 6, 2003, Whitco Company LLP received a bridge loan of $250,000
from Keating Reverse Merger Fund ("Lender"). The note and accrued
interest is due February 6, 2004. Interest on the note is at a rate of
10%. In consideration for the note, the Company agreed to issue warrants
for the purchase of up to 125,000 shares (the "Warrant Shares") of the
common stock of CLG upon consummation of the Merger at a price of $2.00
per Warrant Share. The agreement carries certain rights to repay the
note early following any capital raised by the company.
F-16
PRO FORMA FINANCIAL INFORMATION
INTRODUCTION
In August 2003, Catalyst Lighting Group, Inc. (CLG) completed a merger with
Whitco. On January 31, 2003, certain noteholders converted $375,000 of notes
that were outstanding at December 31, 2002 into partnership units which are to
be exchanged into CLG common stock. CLG's assets and liabilities were nominal at
the date of the agreement. The transaction is accounted for as a reverse merger
acquisition, which results in a recapitalization of WC in as much as it is
deemed to be the acquiring entity for accounting purposes. Assuming the
acquisition is successful, the registrant intends to adopt Whitco's year end.
The accompanying unaudited pro forma combining, condensed balance sheet combines
the balance sheet of WC as of June 30, 2003 with the balance sheet of CLG as of
June 30, 2003.
The accompanying unaudited pro forma combining, condensed statements of
operations combine the operations of WC and CLG for the nine months ended June
30, 2003 and for the twelve months ended December 31, 2002, as if the
acquisition and conversion of notes was completed as of the beginning of the
periods presented under the purchase method of accounting.
These statements are not necessarily indicative of future operations or the
actual results that would have occurred had the merger been consummated at the
beginning of the periods indicated.
The unaudited pro forma combined, condensed financial statements should be read
in conjunction with the historical financial statements and notes thereto,
included elsewhere in this document.
F-17
WHITCO COMPANY, LLP
CATALYST LIGHTING GROUP, INC.
PRO FORMA
COMBINING, CONDENSED BALANCE SHEET
(unaudited)
CATALYST
WHITCO LIGHTING
COMPANY, LLP GROUP, INC.
JUNE 30, JUNE 30, PRO FORMA
2003 2003 MERGER COMBINED
------------- ------------ ----------- -------------
ASSETS
CURRENT ASSETS:
Cash $ - $ 376 $ - $ 376
Trade receivables 2,640,753 - - 2,640,753
Inventory 1,321,935 - - 1,321,935
Prepaid expenses and other 25,574 - - 25,574
------------- ------------ ----------- -------------
Total current assets 3,988,262 376 - 3,988,638
CASH RESTRICTED - 45,000 - 45,000
PROPERTY AND EQUIPMENT, net 114,074 - - 114,074
OTHER ASSETS
Goodwill 2,971,362 - - 2,971,362
Other 15,793 - - 15,793
------------- ------------ ----------- -------------
TOTAL ASSETS $ 7,089,491 $ 45,376 $ - $ 7,134,867
============= ============ =========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving note payable $ 1,673,884 - $ - $ 1,673,884
Current portion of notes payable 490,726 - - 490,726
Other current liabilities 2,670,632 44,058 (b) 50,000 2,764,690
------------- ------------ ----------- -------------
Total current liabilities 4,835,242 44,058 50,000 4,929,300
LONG-TERM OBLIGATIONS, net of current portion 1,210,341 - - 1,210,341
------------- ------------ ----------- -------------
TOTAL LIABILITIES 6,045,583 44,058 50,000 6,139,641
STOCKHOLDERS' EQUITY:
Common stock/partners' contribution 1,030,000 2,000 (b) 2,000 33,914
(c) (1,000,086)
Additional paid-in capital - 25,937 (b) 386,000 1,385,404
(c) 973,467
Retained earnings (accumulated deficit) 13,908 (26,619)(b) (388,000) (424,092)
------------- ------------- --------------
(b) (50,000)
(c) 26,619
------------
Total stockholders' equity 1,043,908 1,318 (50,000) 995,226
------------- ------------ ------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,089,491 $ 45,376 $ - $ 7,134,867
============= ============ =========== =============
F-18
WHITCO COMPANY, LLP
CATALYST LIGHTING GROUP, INC.
PRO FORMA
COMBINING, CONDENSED STATEMENT OF OPERATIONS
(unaudited)
WHITCO CATALYST
COMPANY, LLP LIGHTING
FOR THE NINE GROUP, INC.
MONTHS ENDED FOR THE NINE
JUNE 30, MONTHS ENDED
2003 JUNE 30, PRO FORMA PRO FORMA
2003 ADJUSTMENTS COMBINED
------------- ------------- ------------ -------------
NET SALES $ 10,644,295 $ - $ - $ 10,644,295
COST OF SALES 7,277,750 - - 7,277,750
------------- ------------- ------------ -------------
GROSS PROFIT 3,366,545 - - 3,366,545
OPERATING EXPENSE 3,614,158 6,773 - 3,620,931
------------- ------------- ------------ -------------
LOSS FROM OPERATIONS (247,613) (6,773) - (254,386)
OTHER INCOME (EXPENSE) (a) 14,100
(b) (388,000)
(220,977) 1 (b) (50,000) (644,876)
-------------- ------------- ------------- --------------
NET LOSS BEFORE PRO FORMA INCOME TAXES (468,590) (6,772) (423,900) (899,262)
PRO FORMA INCOME TAXES 169,250 2,512 (178,662) (6,900)
------------- ------------- ------------- --------------
NET LOSS $ (299,340) $ (4,260) $ (602,562) $ (906,162)
============== ============== ============= ==============
BASIC AND DILUTED NET LOSS PER SHARE $ (.02) $ - $ (.03)
============= ============ ==============
COMMON STOCK OUTSTANDING 200,000 3,191,368 3,391,368
============= ============ =============
F-19
WHITCO COMPANY, LLP
CATALYST LIGHTING GROUP, INC.
PRO FORMA
COMBINING, CONDENSED STATEMENT OF OPERATIONS
(unaudited)
WHITCO WHITCO CATALYST
COMPANY, LLP WHITCO COMPANY, LLP LIGHTING
FOR THE NINE COMPANY, LLP FOR THE GROUP, INC.
MONTHS ENDED FOR THE THREE TWELVE MONTHS FOR THE YEAR
SEPTEMBER MONTHS ENDED ENDED ENDED
30, 2002 DECEMBER 31, DECEMBER 31, DECEMBER 31, PRO FORMA PRO FORMA
2002 2002 2002 ADJUSTMENTS COMBINED
-------------- --------------- --------------- --------------- --------------- ---------------
NET SALES $ 10,243,036 $ 3,282,406 $ 13,525,442 $ - $ - $ 13,525,442
COST OF SALES 7,169,790 2,172,735 9,342,525 - - 9,342,525
------------ ------------- ------------- ------------- ------------ -------------
GROSS PROFIT 3,073,246 1,109,671 4,182,917 - - 4,182,917
OPERATING EXPENSE 2,700,835 1,104,146 3,804,981 18,550 - 3,823,531
------------ ------------- ------------- ------------- ------------ -------------
LOSS FROM OPERATIONS 372,411 5,525 377,936 (18,550) - 359,386
OTHER INCOME (EXPENSE) (224,677) (71,519) (296,196) 25 (a) 14,100 (835,071)
(b) (388,000)
(b) (165,000)
------------ ------------- ------------- ------------- ------------ -------------
NET INCOME (LOSS) BEFORE PRO
FORMA INCOME TAXES 147,734 (65,994) 81,740 (18,525) (538,900) (475,685)
PRO FORMA INCOME TAXES (58,062) 22,838 (35,224) 6,873 19,121 (9,230)
------------ ------------- ------------- ------------- ------------ -------------
NET INCOME (LOSS) $ 89,672 $ (43,156) $ 46,516 $ (11,652) $ (519,779) $ (484,915)
============ ============= ============= ============= ============ =============
BASIC AND DILUTED NET
LOSS PER SHARE $ - $ - $ (.14)
============= ============ =============
COMMON STOCK OUTSTANDING 200,000 (d) 3,191,368 3,391,368
============= ============ =============
F-20
WHITCO COMPANY, LLP
CATALYST LIGHTING GROUP, INC.
PRO FORMA NOTES TO COMBINING, CONDENSED FINANCIAL INFORMATION
(a) To reflect the reduction of the related interest expense totaling
$14,100 and $14,100 for the nine months ended June 30, 2003 and for the
twelve months ended December 31, 2002, respectively, related to the
conversion of $375,000 of notes payable in January, 2003.
(b) To reflect expenses related to the merger, which are primarily related
to investment banker, legal and accounting fees. The Company incurred
approximately $553,000 of merger expenses. $165,000 will be paid in
cash (of which $115,000 was accrued during the nine months ended June
30, 2003) and the remainder in common stock valued at $388,000.
(c) To reflect the conversion of partnership units of WC to common stock of
the Company and elimination of accumulated deficit of CLG.
(d) To reflect the issuance of 3,191,368 shares in conjunction with the
acquisition.
F-21