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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 4
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
WENTWORTH III, INC.
(Name of Small Business Issuer in its Charter)
Delaware 6770 84-1588927
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification No.)
Incorporation or Code Number)
Organization)
650 So. Cherry Street, Suite 420, Denver, CO 80246 (303) 320-1870
(Address and Telephone Number of Principal Executive Offices and
Principal Place of Business)
Spencer I. Browne, Secretary
650 So. Cherry Street, Suite 420, Denver, CO 80246 (303) 320-1870
(Name, Address and Telephone Number of Agent for Service)
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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. [ ]
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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 THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF
1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS
THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
The information in this prospectus is not complete and may be changed. These
securities may not be sold 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.
CALCULATION OF REGISTRATION FEE
No registration fee is due on a reconfirmation offer under Rule 419.
PROSPECTUS
Wentworth III, Inc.
50,000 shares of common stock, par value $.01 per share
RECONFIRMATION OFFER
This prospectus relates to the reconfirmation offering required by Rule 419
promulgated by the U.S. Securities and Exchange Commission under the Securities
Act of 1933.
The reconfirmation offering concerns the 50,000 shares of our common stock,
par value $.01 per share which we sold in our initial public offering which was
completed in November 2002.
We entered into a Securities Exchange Agreement with Whitco Company, L.L.P.
("Whitco") in February 2003. Pursuant to the terms of the agreement, we have
agreed to exchange with Whitco all of its issued and outstanding partnership
units, and options to purchase partnership units, for authorized but unissued
shares of common stock aggregating not less than 80% of our issued and
outstanding capital stock. Currently, it is anticipated that holders of Whitco
units will receive 2,991,368 shares of common stock and holders of Whitco
options will receive options to purchase 808,632 shares of common stock, or an
aggregate of 3,800,000 shares and options to purchase common stock, on the basis
of 3,350.47217 shares of common stock for each unit of Whitco owned or option
held. The options represent options issued to key employees of Whitco from June
2000 through December 31, 2002. The options are converted on the same basis as
the common stock. The exercise price, on a converted basis, is $0.30/share for
350,125 shares and $0.86 for 458,507 shares. Our current shareholders will
continue to own 200,000 shares of common stock, assuming that all of the
investors in the IPO reconfirm their investment, and an additional 200,000
shares will be issued to Keating Investments, LLC as a fee in connection with
the securities exchange with Whitco. We are aware that Whitco intends to
reorganize itself as a limited partnership and assign its rights under the
agreement to that limited partnership. For purposes of this prospectus, the term
Whitco will apply to both the current limited liability partnership and the
proposed limited partnership.
As a result of the transaction, Whitco will become a wholly-owned
subsidiary of Wentworth.
This reconfirmation prospectus is being furnished to you, as the investors
in the IPO, so you may consider whether or not to reconfirm your investment as a
result of our entering into the agreement. The proceeds from our IPO have been
placed into escrow and may only be released to us if investors holding at least
two-thirds of the common stock purchased in the IPO reconfirm their investment
in their respective shares. We must receive within 45 days from the date of this
prospectus, written confirmations from at least two-thirds in interest of the
investors in the IPO. The IPO proceeds will be released to us upon receipt of
these written reconfirmations. The IPO proceeds, together with accrued interest,
will be returned to those IPO investors who do not provide us with written
confirmation within the confirmation period or if the reconfirmation offer is
not accepted by at least two-thirds in interest of the IPO investors.
As of the date of this reconfirmation offering, there has been no public
market for our common stock and we cannot assure you that an active trading
market will exist after the proposed exchange is completed, or otherwise.
THIS RECONFIRMATION OFFERING INVOLVES A HIGH DEGREE OF RISK AND AN
IMMEDIATE AND SUBSTANTIAL DILUTION IN YOUR INVESTMENT. ONLY THOSE PERSONS WHO
CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT SHOULD RECONFIRM THEIR INVESTMENT
IN THE SHARES. SEE "RISK FACTORS" COMMENCING ON PAGE 5 HEREOF.
The information in this prospectus is not complete and may be changed.
These securities may not be sold 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.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is June __, 2003
TABLE OF CONTENTS
Page
RECONFIRMATION PROSPECTUS SUMMARY..............................................1
Our Company...........................................................1
Corporate Information.................................................1
Our Initial Public Offering and Rule 419..............................1
Our Proposed Acquisition..............................................2
The Reconfirmation Offering...........................................2
Whitco Company L.L.P..................................................2
Outstanding Securities................................................2
Accounting Treatment..................................................3
Certain Income Tax Consequences.......................................3
Summary Financial Information.........................................3
RISK FACTORS...................................................................5
Risks Relating to the Proposed Acquisition............................7
Risk Factors Affecting Whitco's Business Operations.................. 9
FORWARD-LOOKING STATEMENTS.....................................................12
YOUR RIGHTS AND SUBSTANTIVE PROTECTION UNDER SEC RULE 419......................13
RECONFIRMATION LETTER..........................................................14
TERMS OF RECONFIRMATION OFFERING...............................................14
THE EXCHANGE AGREEMENT ........................................................15
DILUTION AND OTHER COMPARATIVE PER SHARE DATA..................................15
DIVIDEND POLICY................................................................17
CAPITALIZATION.................................................................17
USE OF PROCEEDS............................................................... 18
PLAN OF OPERATION............................................................. 19
THE SECURITIES EXCHANGE AGREEMENT............................................. 19
BUSINESS OF WHITCO COMPANY LLP................................................ 20
Overview ............................................................ 20
Products and Services................................................ 21
Design, Manufacturing and Distribution............................... 22
Employees .......................................................... 22
Business Strategy.................................................... 22
Competition.......................................................... 23
History.............................................................. 23
Management Experience................................................ 23
Legal Proceedings.................................................... 24
Seasonality.......................................................... 24
Properties........................................................... 25
WHITCO COMPANY L.L.P. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................................... 25
Results of Operations................................................ 25
Liquidity and Capital Resources...................................... 29
Impact of Recently Issued Accounting Pronouncements.................. 30
WENTWORTH III, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATION........................... 31
Business............................................................. 31
Plan of Operation.................................................... 31
MANAGEMENT.................................................................... 33
Executive Officers and Directors..................................... 33
Management Following Whitco Transaction ............................. 35
Other Blank Check Offerings.......................................... 35
Executive Compensation............................................... 36
Certain Relationships and Related Transactions....................... 36
Property............................................................. 37
Limitation on Liability and Indemnification Matters.................. 37
Conflict of Interest Policy.......................................... 38
iv
PRINCIPAL STOCKHOLDERS........................................................38
DESCRIPTION OF SECURITIES.....................................................40
General ............................................................40
Common Stock.........................................................40
Preferred Stock......................................................40
State Blue Sky Information...........................................41
Transfer Agent ....................................................41
PLAN OF DISTRIBUTION..........................................................41
CERTAIN MARKET INFORMATION....................................................41
SHARES ELIGIBLE FOR FUTURE SALE...............................................42
ADDITIONAL INFORMATION........................................................43
LEGAL PROCEEDINGS.............................................................43
EXPERTS .....................................................................43
INDEX TO FINANCIAL STATEMENTS.................................................44
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You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information that is different. This
prospectus is intended to offer no securities other than the common stock. This
prospectus may be used only where it is legal to offer and sell these
securities. The information in this prospectus may be accurate on the date of
this document only.
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v
RECONFIRMATION PROSPECTUS SUMMARY
This is a summary of the information contained in this reconfirmation
prospectus. You should carefully read the entire prospectus, including the "Risk
Factors" section, to fully understand our proposed business operations, the
reconfirmation offering being made under this prospectus and the risks
associated with an investment in our securities.
Our Company
We were organized as a Delaware corporation on March 7, 2001 as a "blank
check" company for the purpose of creating a corporate vehicle to seek,
investigate and, if the investigation warrants, acquire one or more interests in
business opportunities presented to us by persons or firms who or which desire
to employ our funding in their businesses or to seek the perceived advantages of
a publicly-held corporation.
Corporate Information
Our offices are currently located at 650 So. Cherry Street, Suite 420,
Denver, CO 80246. Our telephone number is (303) 320-1870.
Our Initial Public Offering and Rule 419
We completed our initial public offering in November 2002. We sold a total
of 50,000 shares of common stock at a price of $1.00 per share. All of the
shares were sold for our benefit and there were no selling stockholders in the
IPO.
The $50,000 proceeds of the IPO, less 10% which was disbursed to us for
expenses, were placed into escrow in accordance with Rule 419 promulgated by the
U.S. Securities and Exchange Commission (the "SEC" or "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"). Rule 419 requires us,
as a "blank check" company, to hold the proceeds from our IPO, less 10% for
payment of expenses incurred in connection with the IPO, in escrow pending the
earlier of the (a) expiration of an eighteen month period commencing on the date
on which the registration statement for our IPO was originally declared
effective or (b) reconfirmation by at least two-thirds in interest of the
investors in our IPO of their respective purchases in the IPO following receipt
by these investors of a prospectus containing required information and
disclosures concerning, among other matters, the results of the IPO and our
proposed acquisition of one or more businesses or assets that will constitute
our business and for which the fair value of the business or net assets to be
acquired represents at least 80% of the maximum proceeds to be received from the
IPO.
1
Our Proposed Acquisition
We entered into a Securities Exchange Agreement with Whitco Company, L.L.P.
("Whitco") in February 2003. Under the agreement, we have the right to exchange
authorized but unissued common stock aggregating not less than 80% of our issued
and outstanding common stock for all of the issued and outstanding partnership
units, and all options to purchase partnership units, of Whitco, subject to
specified conditions and terms set forth in the agreement. The exchange will be
structured as an exchange of equity. The consideration to be paid by us in
acquiring the partnership units, and options to purchase partnership units, of
Whitco will consist of our issuance of 2,991,368 shares of common stock and
options to purchase 808,632 shares of common stock. We are aware that Whitco
intends to reorganize itself as a limited partnership and assign its rights
under the agreement to that limited partnership. For purposes of this
prospectus, the term Whitco will apply to both the current limited liability
partnership and the proposed limited partnership.
The Reconfirmation Offering
This prospectus is to serve as the means by which we are soliciting the
investors in our IPO to reconfirm their respective purchases of common stock in
the IPO. We must receive, by no later than 45 days from the date of this
prospectus, written confirmations from all investors in the IPO. The IPO
proceeds will be released to us upon receipt of these written reconfirmations.
IPO proceeds, together with accrued interest, will be returned to those
individual IPO investors who either do not provide us with written confirmation
within the confirmation period or who provide us with written confirmation they
wish to rescind their purchase of common stock in the IPO. The IPO proceeds,
together with accrued interest, will be returned to all IPO investors if the
reconfirmation offer is not accepted by at least two-thirds in interest of the
IPO investors.
Whitco Company, L.L.P.
Whitco is a nationwide marketer and distributor of steel and aluminum
outdoor lighting poles and related accessories. Founded in 1969, Whitco
generates revenue through the sale of poles directly to original equipment
manufacturers (OEM's) and indirectly to other third parties through its sales
representatives.
Outstanding Securities
We set forth below a summary of our equity ownership both before the IPO
and after giving effect to the completion of our proposed securities exchange
with Whitco, as well as other information concerning the securities sold in our
IPO. We have assumed, for the purposes of this summary, that all of the
investors in the IPO will reconfirm their respective purchases of common stock.
Shares of common stock outstanding immediately prior to the IPO................. 150,000
Shares of common stock sold in the IPO.......................................... 50,000
Shares of common stock issued after the IPO..................................... 0
Shares to be issued in connection with our acquisition of Whitco................ 2,991,368
Shares to be issued as a fee in connection with the acquisition of Whitco....... 200,000
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Shares to be outstanding after our acquisition of Whitco....................... 3,391,368
Use of proceeds from our IPO.............................. Payment of deferred offering costs of IPO.
2
Accounting Treatment
The proposed exchange will be treated, for accounting purposes, as a
reverse acquisition which results in the recapitalization of Whitco in as much
as it is deemed to be the acquiring entity. Whitco will be treated as the
acquirer for accounting purposes because the former partners of Whitco will
receive a larger portion of the common stockholder interests and voting rights
than those retained by our stockholders immediately prior to completion of the
acquisition.
Certain Income Tax Consequences
The acquisition is intended to qualify as a "tax-free reorganization" for
purposes of the United States federal income tax laws. As such, our
stockholders, as well as the holders of partnership units and options to
purchase partnership units of Whitco, who are subject to United States income
tax will not recognize gain or loss upon the closing of the acquisition
transaction. The acquisition also is not intended to result in the recognition
of gain or loss to either us or Whitco in the respective jurisdictions where we
and they are subject to taxation. NO OPINION OF COUNSEL, NOR ANY RULING FROM THE
INTERNAL REVENUE SERVICE, HAS BEEN OBTAINED IN CONNECTION WITH THE PUBLICATION
OF THE FOREGOING INCOME TAX CONSEQUENCES. YOU SHOULD CONSULT WITH YOUR OWN
ACCOUNTANTS AND TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
ACQUISITION TRANSACTION TO YOU.
SUMMARY FINANCIAL INFORMATION
Wentworth III
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The table below contains certain summary historical
financial data of Wentworth III. The historical financial data for the period
ended December 31, 2002, has been derived from our audited financial statements
which are contained in this prospectus. The information should be read in
conjunction with those financial statements and notes, and other financial
information included in this prospectus.
From
For the 3 Months Ended For the Year Ended March 7, 2001 to
March 31, 2003 December 31, 2002 December 31, 2001
-------------- ------------------- -----------------
Statement of Income Data:
Net Sales $ -0- $ -0- $ -0-
Net Income(Loss) $ (5,408) $ (18,525) $ (1,322)
Net Gain (Loss) Per Share $ (.03) $ (.09) $ (.01)
Shares Outstanding 200,000 200,000 150,000
As of March As of December
31, 2003 31, 2002
Balance Sheet Data
Working Capital (Deficit) $ (42,318) $ (36,910)
Total Assets $ 45,681 $ 47,125
Long-Term Debt $ -- $ 0
Total Liabilities $ 42,999 $ 39,035
Total Shareholders' Equity $ 2,682 $ 8,090
Whitco
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The table below contains certain summary historical and pro forma
financial data of Whitco. Net income (loss) for purposes of this summary equals
the historical net income (loss) adjusted for pro forma taxes, as if Whitco were
a C-corporation for tax purposes. The historical and pro forma financial data
for the year ended September 30, 2002 has been derived from our audited
financial statements which are contained in this prospectus. The information
should be read in conjunction with those financial statements and notes, and
other financial information included in this prospectus.
3
Six Months
Ended
Nine months ended Three months Twelve months Twelve months March 31, 2003
ended September 30, ended December ended December Ended December ------------------
2002 31, 2002 31, 2002 31, 2001 2003 2002
Statement of Income Data:
Sales $10,243,036 $3,282,406 $13,525,442 $11,784,438 6,574,408 6,093,056
Net Income (Loss)- Proforma $89,672 $ (43,156) $ 46,516 $ 198,531 (135,192) 64,693
Net Income (Loss) Per Unit $107.26 $ (51.62) $ 55.64 $ 165,44 (151.39) 53.91
Partnership Units Outstanding 836 836 836 1,200 893 1200
As of As of March 31, 2003
September 30, 2002
Balance Sheet Data
Working Capital (Deficit) ($146,978) $ (404,785)
Total Assets $6,275,218 $6,509,457
Long-Term Debt $1,838,571 $1,414,106
Total Liabilities $5,137,720 $5,207,635
Total Partners' Equity $1,137,498 $1,301,822
Whitco and Wentworth III
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Pro-forma Combined, Condensed Information
- -----------------------------------------
The pro forma information in the table below combines the balance sheet of
Whitco and Wentworth III as of March 31, 2003 as if the acquisition was
effective on March 31, 2003. The table also combines the statements of
operations of Whitco and Wentworth III for 6 months ended March 31, 2003 and the
twelve months ended December 31, 2002 as if the acquisition was effective at the
beginning of each period presented. This information is not necessarily
indicative of future operations or the actual results that would have occurred
had the merger been at the beginning of each period presented. This pro forma
information should be read in conjunction with the historical and pro forma
financial statements included elsewhere in this document.
March 31, 2003 December 31, 2002
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Statement of Income Data
----------------------------------------- -------------------- ---------------------
Sales $ 6,574,408 $ 13,525,442
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Loss before pro forma taxes $ (770,658) $ (475,665)
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Net Loss after pro forma taxes $ (775,258) $ (484,415)
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Net Loss (after pro forma taxes) $ (.23) $ (.14)
per share
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Balance Sheet Data
----------------------------------------- --------------------
Working capital $ (567,103)
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Total assets $ 6,555,138
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Long-term debt $ 1,414,106
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Total liabilities $ 5,415,634
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Stockholders' equity $ 1,139,504
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4
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. You should not reconfirm your investment in the common stock
you purchased in the IPO unless you can afford to lose your entire investment.
Readers are encouraged to review these risks carefully before making any
investment decision.
WE USED AN ARBITRARY BASIS FOR DETERMINING THE OFFERING PRICE OF THE SHARES
WHICH HAS NO CORRELATION TO THE VALUE OF WENTWORTH OR ANY OF ITS ASSETS WHICH
MAY RESULT IN YOUR SHARES HAVING LESS VALUE THAN YOU PAID.
The offering price of the shares had 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 arbitrarily determined the offering price of the shares and such
price was 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 our lack of operating history, estimates of our business
potential, the proceeds to be raised by the IPO, the amount of capital to be
contributed by the public in proportion to the amount of stock to be retained by
stockholders prior to the IPO, our relative requirements and the current market
conditions in the over-the-counter market. Accordingly, you should not consider
the price you paid for your shares as any objective indication of our actual
value. You are therefore bearing the risk that you are 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 even if we successfully consummate the business combination with
Whitco or any other business combination.
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. While management would own only approximately four
percent (4%)of our outstanding common stock after the transaction with Whitco is
completed, in the event such transaction is not completed, management would
continue to own seventy-five percent (75%), and would therefore continue to
retain control. Currently, Kevin R. Keating, President, owns a total of 90,000
shares of common stock, comprising approximately 45% of the outstanding shares.
Further, management's own pecuniary interest may at some point compromise its
fiduciary duty to our stockholders. In addition, both Mr. Keating and Spencer I.
Browne, who is our secretary and a director, are currently involved with other
blank check offerings and conflicts may arise in the pursuit of business
combinations with such other blank check companies with which Mr. Keating, Mr.
Browne and other members of our management are, and may be in the future,
affiliated. If we and the other blank check companies our officers and directors
are affiliated with desire to take advantage of the same opportunity, those
officers and directors affiliated with both companies would abstain from voting
upon the opportunity. In the event of identical officers and directors, the
company that first filed a registration statement with the SEC will be entitled
to proceed with the proposed transaction.
MANAGEMENT CAN EXERCISE NEARLY COMPLETE CONTROL OF WENTWORTH, THEREBY CAUSING IT
TO TAKE ACTIONS WHICH MAY NOT BE CONSISTENT WITH YOUR WISHES.
Current management owns 75% of the issued and outstanding common stock.
Given their large voting control, current management is in the position to elect
all of the members of our board of directors and thereby control the policies of
our company. Further, management controls a significant portion of the voting
power of the common stock. As such, our management has substantial influence
over our company, which influence may not necessarily be consistent with the
interests of our other stockholders.
5
WE HAVE NO OPERATING HISTORY AND NO OPERATING BUSINESS SO THE VALUE OF YOUR
INVESTMENT WILL BE BASED SUBSTANTIALLY ON ANY BUSINESS COMBINATION WE MAY SEEK.
As we have no operating history or revenue and only minimal assets,
there is a risk that, if the Whitco transaction is not consummated, we will be
unable to continue as a going concern and consummate a business combination. We
have had no recent operating history nor any revenues or earnings from
operations since inception. We have no significant assets or financial
resources. We will sustain operating expenses without corresponding revenues, at
least until the consummation of a business combination. This may result in our
incurring a net operating loss that will increase continuously until we can
consummate a business combination with a profitable business opportunity. In the
event the proposed transaction with Whitco is not consummated, we cannot assure
you that we can identify a suitable business opportunity and consummate a
business combination.
WE MAY BE SUBJECT TO FURTHER GOVERNMENT REGULATION WHICH WOULD ADVERSELY AFFECT
OUR OPERATIONS.
Although we will be subject to the reporting requirements under the
Exchange Act, management believes we will not be subject to regulation under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), since
we will not be engaged in the business of investing or trading in securities. If
we engage in business combinations which result in our holding passive
investment interests in a number of entities, we could be subject to regulation
under the Investment Company Act. If so, we would be required to register as an
investment company and could be expected to incur significant registration and
compliance costs. We have obtained no formal determination from the Securities
and Exchange Commission (the "SEC" or "Commission") as to our status under the
Investment Company Act and, consequently, violation of the Act could subject us
to material adverse consequences.
WE MAY NOT BE ABLE TO STRUCTURE OUR ACQUISITION TO RESULT IN TAX-FREE TREATMENT
FOR THE COMPANIES OR THEIR SHAREHOLDERS OR PARTNERS, WHICH COULD DETER THIRD
PARTIES FROM ENTERING INTO CERTAIN BUSINESS COMBINATIONS WITH US OR RESULT IN
YOUR BEING TAXED ON CONSIDERATION RECEIVED IN A TRANSACTION.
Currently, a transaction may be structured so as to result in tax-free
treatment to both companies and all of its equity holders, as prescribed by
various federal and state tax provisions. We intend to structure any business
combination so as to minimize the federal and state tax consequences to
Wentworth III, Whitco and all of their respective equity holders, or whomever is
our eventual target entity, if any. However, we cannot guarantee the business
combination will meet the statutory requirements of a tax-free reorganization or
that the parties will obtain the intended tax-free treatment upon a transfer of
stock or assets. A non-qualifying reorganization could result in the imposition
of both federal and state taxes that may have an adverse effect on either or
both parties to the transaction as well as their equity holders.
IF WE RAISE ADDITIONAL FUNDS THROUGH THE ISSUANCE OF OUR EQUITY SECURITIES, OR
DETERMINE TO REGISTER THE 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 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 the actual dilution does not occur.
In order for us to obtain additional capital, 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.
6
IF WE INCUR INDEBTEDNESS, WE MAY BECOME TOO HIGHLY LEVERAGED AND WOULD BE IN
RISK OF DEFAULT.
There is no contractual 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.
IF WE DO NOT QUALIFY OUR SECURITIES IN STATES OTHER THAN COLORADO AND DELAWARE,
YOUR RESALE OF ANY SHARES YOU ACQUIRED MAY BE LIMITED.
We offered and sold the shares only in the State of Colorado. We
believe the common stock will be eligible for sale on a secondary market basis
in other states based upon applicable exemptions from that 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 prospectus. However, the lack of registration
in most states and the requirement of a seller to comply with the requirements
of state blue sky laws in order for the seller to qualify for an applicable
secondary market sale exemption may cause an adverse effect on the resale price
of our securities, as well as the delay or inability of a holder of our
securities to depose of such securities.
IF WE DO NOT CONSUMMATE THE BUSINESS COMBINATION WITH WHITCO, THERE IS THE
POSSIBILITY WE WILL NOT BE ABLE TO IDENTIFY ANOTHER SUITABLE BUSINESS FOR
ACQUISITION OR MERGER AND WE AND OUR STOCKHOLDERS WILL FACE UNCERTAINTY OVER THE
FUTURE OF WENTWORTH.
Although we have an existing agreement for a business combination with
Whitco, there can be no assurance such transaction will, in fact, be
consummated. The proposed transaction is subject to a number of conditions,
including satisfactory due diligence review, third party approvals and no
material adverse change in Whitco's business. In the event the business
combination with Whitco is not consummated, there can be no assurances we will
successfully identify, evaluate or conclude a suitable business combination. We
cannot guarantee we will be able to negotiate a business combination on
favorable terms, and there is consequently a risk that funds allocated to the
purchase of our shares will not be invested in a company with active business
operations. In the event we fail to complete the business combination with
Whitco, or any other transaction in compliance with Rule 419 on or before
February 6, 2004, we are required by Rule 419 to promptly return to the IPO
investors the funds paid for their common stock which are being held in escrow.
In such event, your funds could be returned to you with some loss of capital due
to expenses.
Risks Relating to the Proposed Acquisition
ISSUANCE OF COMMON STOCK IN THE PROPOSED ACQUISITION WILL RESULT IN SUBSTANTIAL
ADDITIONAL DILUTION.
The proposed transaction with Whitco will result in our issuing an
aggregate of 3,800,000 shares and options to purchase shares of common stock.
This issuance will result in substantial and immediate dilution to your
percentage ownership of common stock.
7
BECAUSE A PUBLIC MARKET FOR OUR SECURITIES IS NOT LIKELY TO DEVELOP AFTER THE
WHITCO TRANSACTION, YOU MAY NOT BE ABLE TO SELL YOUR SECURITIES OR ACHEIVE
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. It is unlikely a regular
trading market will develop when the reconfirmation offering is concluded or
immediately following the completion of the proposed acquisition with Whitco.
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, we can give no assurance such a market could be
sustained if a trading market for our securities were to develop, 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 traded at a low price, many
brokerage firms may choose not to engage in market making activities or effect
transactions in our securities. Accordingly, purchasers of our securities may
have difficulties in reselling them and many banks may not grant loans using our
securities as collateral. Such absence of a public market could effectively
eliminate your ability to sell your shares.
WE WILL LACK BUSINESS DIVERSIFICATION AS WE WILL ONLY BE OPERATING IN ONE
BUSINESS IN ONE INDUSTRY, WHICH MAKES US SUBJECT TO ALL THE RISKS AND
UNCERTAINTIES OF THAT INDUSTRY.
Whitco will be our sole operating business following the proposed
acquisition. Accordingly, the prospects for our success will be 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.
WE HAVE LIMITED ABILITY TO EVALUATE MANAGEMENT OF A TARGET BUSINESS SO THERE CAN
BE NO ASSURANCE SUCH MANAGEMENT CAN CONTINUE TO PROFITABLY RUN THE BUSINESS OR
ENTER INTO AND COMPETE IN ANY NEW MARKETS.
Other than a seat on the board of directors to be held by Kevin
Keating, our current President, we expect our present management to play no
managerial role in Wentworth following a business combination. Although we have
met with the management of Whitco in connection with our evaluation of the
proposed business combination, our assessment of management may be incorrect. In
evaluating Whitco, we have considered several factors, including the following:
o experience and skill of management and availability of additional personnel
of the target business;
o costs associated with effecting the business combination;
o equity interest retained by our stockholders in the merged entity;
o the financial statements of the target business;
o growth potential of the target business;
o capital requirements of the target business;
o capital available to the target business;
o competitive position of the target business;
o stage of development of the target business;
o degree of current or potential market acceptance of the target business,
products and services;
o proprietary features and degree of intellectual property or other
protection of the target business; and
o the regulatory environment in which the target business operates.
8
Additionally, Whitco may incur significant start-up costs in connection
with entering new markets. There can be no assurance Whitco will achieve its
planned expansion goals on a timely basis, if at all, or manage its growth
effectively. Failure to expand or manage its growth could have a material
adverse effect on Whitco's and our financial condition and results of
operations.
EVEN IF WHITCO IS SUCCESSFUL IN ACQUIRING, MERGING OR PARTNERING WITH ADDITIONAL
COMPANIES, THERE CAN BE NO ASSURANCE AS TO HOW LONG A PERIOD OF TIME
ACCOMPLISHING SUCH PROFITABILITY WILL TAKE OR THE LEVELS OF FUTURE PROFITABILITY
WHICH MAY BE ACHIEVED.
Acquisitions, mergers and partnerships all involve a number of risks,
including the diversion of management's attention and finances, issues related
to the assimilation of the operations and personnel of the businesses and
potential adverse effects on operating results. There can be no assurance that
Whitco will find attractive candidates for such arrangements, that such deals
can be consummated on acceptable terms, that the demands of any such arrangement
can be integrated successfully into Whitco's existing operations or that any
such transaction will not have an adverse effect on Whitco's financial condition
or results of operations.
THERE WAS NO INDEPENDENT VALUATION OF WHITCO UPON WHICH YOU CAN BASE AN
INVESTMENT DECISION SO YOU HAVE TO RELY ON THE JUDGMENT OF MANAGEMENT OF
WENTWORTH THAT WHITCO CURRENTLY REPRESENTS THE BEST OPPORTUNITY FOR WENTWORTH TO
PURSUE.
Because of our lack of suitable financial resources, we are unable to
obtain a feasibility study, independent analysis or current market survey of
Whitco. Feasibility studies, independent analyses and market surveys are
customarily used by companies in determining whether to make an acquisition.
Companies which have historically made successful acquisitions have relied upon
the information in those documents. If we had the information those documents
would have disclosed to us, we may have decided either not to enter into the
transaction with Whitco or to attempt to renegotiate the terms and conditions.
Accordingly, the terms and consideration we will pay in the Whitco transaction
were established through our own analysis and arms-length negotiations with
Whitco, and does not necessarily bear any relationship to Whitco's asset value,
net worth or other established criteria of value, and should not be considered
indicative of the actual value of Whitco or us. You should not consider the
number of shares of common stock to be issued in the proposed acquisition of
Whitco as any indication of our value following completion of the acquisition
transaction. Furthermore, neither we nor Whitco has obtained either an appraisal
of any entity or their respective securities or an opinion that the acquisition
is fair from a financial perspective.
Risk Factors Affecting Whitco's Business Operations
We have set forth below a number of risk factors affecting Whitco's business
operations.
THERE IS INTENSE COMPETITION IN WHITCO'S INDUSTRY WHICH MAY ADVERSELY AFFECT THE
FINANCIAL CONDITION OF, AND YOUR INVESTMENT IN, WHITCO.
There are numerous competitors in the fields in which Whitco is
currently involved and in which it intends to enter, all of which have developed
product lines and established customer followings. In many cases, Whitco's
competitors have far greater financial and other resources. Whitco also expects
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 Whitco's 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. Although Whitco could harm its existing
9
relationships, they feel that directly competing against them in a related but
different segment of the market will not harm its existing business or those
relationships. Further, Whitco may face a significant competitive challenge from
alliances entered into between and among its competitors, as well as from larger
competitors created through industry consolidation. The combined resources of
these partnerships or consolidated entities could pose a significant competitive
challenge to Whitco and could impede Whitco in or prevent it from establishing
relationships which would be most beneficial to it.
WHITCO IS DEPENDENT ON A FEW MANUFACTURERS TO MAKE THE TUBES REQUIRED FOR ITS
BUSINESS, WHICH COULD ADVERSELY AFFECT THE RESULTS OF OPERATIONS OF WHITCO.
Whitco's primary business is selling lighting poles in a variety of
market segments. Although Whitco owns the raw materials, it relies on
fabricators to turn the steel tubes into the poles it sells. Currently, Whitco
uses two manufacturers and has a written agreement with one of them, making them
substantially dependent on these two companies. Although there are multiple
fabricators with which Whitco could enter into agreements, the deterioration or
cessation of either relationship could be expected to have a material adverse
effect, at least temporarily, on Whitco as it attempts to negotiate a deal with
other manufacturers of lighting poles.
WHITCO MAY BE SUBJECT TO LAWSUITS AS A RESULT OF THE MANUFACTURE, DESIGN AND
INSTALLATION OF ITS LIGHTING POLES, WHICH COULD BE COSTLY AND DIVERT NEEDED
RESOURCES AWAY FROM ITS OPERATIONS.
Whitco is currently not involved in any legal proceedings. Although
Whitco does not manufacture or install the lighting poles it designs and sells,
Whitco still faces the risk of lawsuits from property owners, federal and state
governments and any injured parties from any accidents occurring as a result of
the manufacture, design or installation of the lighting poles and fixtures. Any
such lawsuit, even if without merit, could divert needed time, money and other
resources from operating Whitco's business. Although Whitco currently has
property, general liability and product liability insurance in amounts it
believes to be adequate, Whitco can give no assurance that such insurance will
remain available at a reasonable price 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 us and on your investment in us. Additionally, Whitco's
failure to implement and maintain a quality control program with respect to the
manufacture and installation of its poles could increase the risk that it
becomes liable for any injury that may occur from one of its poles.
EFFORTS TO PROTECT INTELLECTUAL PROPERTY OR THE ALLEGED MISUSE OF THE
INTELLECTUAL PROPERTY OF OTHERS MAY CAUSE WHITCO TO BECOME INVOLVED IN COSTLY
AND LENGTHY LITIGATION WHICH COULD DIVERT NEEDED RESOURCES AWAY FROM ITS
OPERATIONS.
10
Whitco's success depends in part on its ability to obtain and preserve
patent, trademark and other intellectual property rights, the software created
in connection with its business, services, products and the pole designs they
have created. Whitco does not currently have any trademark or patent protection
but is seeking it with respect to its trade logos. The process of seeking
trademark and patent protection can be 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 Whitco is issued. If Whitco fails to
protect its intellectual property from infringement, other companies may offer
competitive products. Protection of our intellectual property could result in
costly and lengthy litigation, diverting resources which would otherwise be
dedicated to managing the business.
WHITCO MAY NEED TO EXPEND TIME AND FINANCIAL RESOURCES TO LEARN AND COMPETE IN
THOSE PARTS OF THE INDUSTRY WHICH IT INTENDS TO ENTER FOR THE FIRST TIME WHICH
COULD DIVERT NEEDED RESOURCES AWAY FROM ITS 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 Whitco's 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 Whitco's financial condition and results of operations.
WHITCO 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 Whitco's acquisition strategy will result in a
labor-intensive process to integrate new businesses into Whitco's 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 Whitco is not successful in
integrating acquired businesses, its 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.
11
WHITCO IS DEPENDENT ON THE PRICE OF STEEL, OVER WHICH IT HAS NO CONTROL, AND ANY
PRICE INCREASE COULD HAVE AN IMPACT ON WHITCO'S FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Whitco makes the majority of its lighting poles out of steel. Accordingly,
profit margins are dependent on the price of the raw steel tubes purchased from
time to time. Due to its size relative to the size of the world's largest raw
steel purchasers, 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 they
pass the savings on to their 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. Accordingly, Whitco's dependence on
the price of raw steel could be expected to have a material adverse effect on
Whitco's business and financial condition.
MANAGEMENT AND ITS AFFILIATES WILL HAVE CONTROL OF WHITCO, THEREBY CAUSING
WHITCO TO TAKE ACTIONS WHICH MAY BOT BE CONSISTENT WITH YOUR WISHES.
Our anticipated management following the transaction will control 50.36% of
the total voting power of Wentworth. Given their large voting control, it is
expected that management will exert nearly total control over the policies of
Wentworth. Further, the anticipated management will have the ability, through
exercise of options, to acquire additional shares of Common Stock. As such,
management will have substantial influence over Wentworth, which influence may
not necessarily be consistent with the interests of our other stockholders.
WHITCO IS CURRENTLY IN DEFAULT OF CERTAIN FINANCIAL COVENANTS RELATING TO ITS
REVOLVING CREDIT AGREEMENT.
Whitco currently has a $2,000,000 credit facility with PNC Bank, whereby
Whitco can borrow the lesser of $2,000,000 or the aggregate of 80% of eligible
accounts receivable and 50% of eligible inventory, as such terms are defined in
the agreement with PNC. Whitco is currently in violation of the following
covenants (1) Whitco has a tangible net worth (as defined in the PNC agreement)
of less than $300,000, (2) the ratio of (Total Debt - Subordinated Debt) to
(Book Net Worth + Subordinated Net Worth - Intangible Assets) is greater than 8
to 1 and (3) cash flow coverage is below 1.0 to 1.0. Although PNC Bank is aware
of these defaults it has indicated it will not seek to call the promissory note,
pursuant to which Whitco currently owes approximately $1,017,082. 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.
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. Such 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,"
12
"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 such 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 publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
YOUR RIGHTS AND SUBSTANTIVE PROTECTION UNDER SEC RULE 419
Rule 419, promulgated by the SEC under the Securities Act, requires the
proceeds of our IPO, after deducting underwriting commissions, underwriting
expenses and dealer allowances, if any, to be deposited into an escrow or trust
account governed by an agreement that contains certain terms and provisions
specified by Rule 419. Of the $50,000 of gross proceeds from the IPO, $45,000
has been placed into escrow. Rule 419 permits us to retain up to 10% of the
funds to pay for IPO expenses. Additionally, the shares sold in the IPO were
placed into escrow in accordance with Rule 419.
Under Rule 419, the IPO funds will be released to us and the IPO
securities will be released to the IPO investors, only after we have met the
following three basic conditions:
o First, we must execute an agreement for an acquisition of a business or
assets that will constitute our business and for which the fair value of
the business or net assets to be acquired represents at least 80% of the
maximum offering proceeds, but excluding underwriting commissions,
underwriting expenses and dealer allowances, if any. We have entered into
such an agreement to acquire Whitco.
o Second, we must file a post-effective amendment to the registration
statement which includes results of the IPO including, but not limited to,
the gross offering proceeds raised to date, amounts paid for underwriting
commissions, underwriting expenses and dealer allowances, if any, amounts
dispersed to us and amounts remaining in the escrow account. In addition,
we must disclose the specific amount and use of funds disbursed to us to
date, including payments to officers, directors, controlling stockholders
and affiliates, specifying the amounts and purposes of these payments. We
must also disclose the terms of the reconfirmation offer with the
conditions prescribed by the rules. The post-effective amendment must also
contain information regarding the acquisition candidate and business,
including audited financial statements. This reconfirmation prospectus is
part of a post-effective amendment we filed to comply with this
requirement.
13
o Third, we must mail a copy of the reconfirmation prospectus to each IPO
investor within five business days of the effective date of the
post-effective amendment. This prospectus is the reconfirmation prospectus
which we believe conforms to the requirements of Rule 419. After we submit
a letter to the escrow agent stating we have met the requirements of Rule
419, and after the proposed acquisition is completed, the escrow agent can
release the funds and securities.
We entered into an escrow agreement with Key Bank, National
Association, pursuant to which Key Bank will hold the IPO proceeds and the stock
certificates of the IPO investors in escrow pursuant to Rule 419. If we have not
completed a business combination on or before February 6, 2004, all of the IPO
proceeds will be promptly returned to the IPO investors, the certificates
evidencing the securities comprising the shares purchased in our IPO will be
canceled. Under the terms of the escrow agreement, the funds may only be
released upon written notice from us to Key Bank confirming we have met the
three conditions described above.
Of the $50,000 of gross proceeds from our IPO, $45,000 has been placed
into escrow. Rule 419 permits us to retain up to 10% of the funds to pay for the
IPO expenses. The IPO funds, and any dividends or interest earned, are being
held for the sole benefit of the IPO investors and can only be invested in bank
deposits, money market mutual funds, federal government securities or securities
for which the principal or interest is guaranteed by the federal government.
RECONFIRMATION LETTER
If you, an investor in our IPO, decide to accept the reconfirmation offer
being made under this reconfirmation prospectus, you should complete and sign a
reconfirmation letter in the form that accompanies this prospectus and return it
to us using the pre-addressed, postage-paid envelope that also accompanies this
prospectus. We will forward a copy of each reconfirmation letter to the escrow
agent. You will have 45 business days from the date of this prospectus to
reconfirm your purchase of common stock in our IPO. Any IPO investor who fails
to complete, sign and return a reconfirmation form so that it is received by us
within 45 business days from the date of this prospectus will be deemed to have
rejected the reconfirmation offer. Rejecting IPO investors will automatically be
sent a check representing the investor's funds that are being held in the escrow
account, plus interest on such funds.
The acceptance of the reconfirmation offer by completing, signing, and
returning the reconfirmation letter is irrevocable.
TERMS OF THE RECONFIRMATION OFFER
Each purchaser of shares pursuant to the Offering has no fewer than 20
business days and no more than 45 business days from the date hereof to
reconfirm in writing their desire to invest in us. Please send your written
reconfirmation notice to:
Wentworth III, Inc.
c/o Spencer I. Browne, Secretary
650 So. Cherry Street, Suite 420
Denver, Colorado 80246
14
If we do not receive reconfirmation offers within 45 business days from
the date hereof, funds and interest or dividends, if any, held in the escrow
account will be sent by first class mail or other equally prompt means to you
within five business days. The funds held in the escrow account will be released
to us and the securities will be delivered to you at the same time as or after
the escrow agent receives a signed representation from us that the requirements
of Rule 419 have been met and consummation of the transaction with Whitco.
EXCHANGE AGREEMENT
Pursuant to the Securities Exchange Agreement, Whitco has agreed to merge
with and into a wholly owned subsidiary to be formed by us. The terms of the
merger are set forth in the agreement and consummation of the merger is
conditioned upon, among other things, the acceptance of the reconfirmation offer
by all holders of common stock.
Each shareholder who holds common stock and who accepts the reconfirmation
offer shall continue to hold his or her share certificate(s) representing our
registered common stock.
At the effective date of the exchange, 100% of Whitco's issued and
outstanding partnership units and options to purchase partnership units will be
canceled and we will issue 2,991,368 shares of common stock and options to
purchase 808,632 shares of common stock. The options to purchase partnership
units will be replaced with options to purchase common stock. The issuance of
3,800,000 shares and options represents 90.48% of our issued and outstanding
common stock, assuming the exercise of options, and is issued to former Whitco
unit and option holders in proportion to their holdings in Whitco. In addition,
shares of common stock representing 4.76% of the merged entity, will be issued
to Keating Investments, LLC. After the merger, assuming that all of our
shareholders reconfirm their investment, our shareholders will own approximately
4.76% of Wentworth, assuming the exercise of options.
The surviving entity will remain our wholly owned subsidiary. After the
merger, we anticipate changing our name to Catalyst Lighting Group, Inc.
DILUTION AND OTHER COMPARATIVE PER SHARE DATA
The following table summarizes, as of the date of this reconfirmation
prospectus and assuming that we complete the proposed acquisition of Whitco:
o the number of shares of common stock issued by us;
o the number of shares issued as a percentage of our total outstanding
common stock;
o the aggregate cash and non-cash consideration paid for such shares;
o the aggregate consideration paid as a percentage of total
consideration paid; and
o the average consideration per share paid for such shares by the IPO
investors, our pre-IPO stockholders and the Whitco partners.
For purposes of this summary, (a) we have valued the consideration paid by
the Whitco members as the net book value of Whitco as of March 31, 2003 and
(b) we assume that we will issue a total of 3,191,368 shares of common stock
upon consummation of the proposed acquisition (200,000 of which are being paid
to Keating Investments, LLC as a fee in connection with the acquisition).
15
Shares of Percentage Percentage Average
Common Stock of Total Aggregate of Total Consideration
Purchased Shares Consideration Consideration Per Share
--------------- --------------- ---------------- --------------- ----------------
IPO investors............... 50,000 1.47 % $ 50,000 3.32% % $ 1.00
Pre-IPO stockholders........ 150,000 4.42 7,500 0.50% 0.05
Post-IPO stockholders....... 200,000 5.89 0 * 0.00
Whitco Partnership Unit .... 2,991,368 88.22 1,447,503 96.18% .48
----------- --------- ----------- ----------
Totals...................... 3,391,368 100.0% $1,505,003 100.0%
=========== ========= =========== ==========
As a result of the completion of our acquisition of Whitco, investors in
the IPO, subject to the reconfirmation offering being made under this
prospectus, will experience immediate and substantial dilution from the IPO
price in the net tangible book value per share of the common stock.
For purposes of this discussion, dilution has been calculated based on two
triggering events. Dilution has been first calculated as a result of the IPO by
subtracting net tangible book value of Wentworth III as of March 31, 2003
from the IPO offering price. Dilution to the IPO shareholders as a result of the
merger with Whitco was also calculated based on the pro forma combined condensed
financials statements included elsewhere in this document. Net tangible book
value for purposes of this discussion is the amount that results from
subtracting our total liabilities and intangible assets from our total assets.
At March 31, 2003, Wentworth III had net tangible book value of $2,682,
or approximately $.01 per share. This results in dilution to the IPO
shareholders of $.99 per share. The pro forma net tangible book value of the
combined entities as a result of the acquisition is $(1,139,504), or
approximately $(.54) per share. The negative amount is primarily impacted by the
$2,971,362 of goodwill recorded on the books of Whitco, which is deducted for
the net tangible book value calculation. Pro forma dilution to the IPO
shareholders as a result of the acquisition is an additional $.55 per share.
Total pro forma dilution to the IPO shareholders after the acquisition is
therefore $1.54 per share.
Dilution Table
--------------------------------------------------------------------------------------------------- -----
Net price per IPO $1.00
--------------------------------------------------------------------------------------------------- -----
Net tangible book value per share at March 31, 2003 .01
--------------------------------------------------------------------------------------------------- -----
Dilution for IPO to net tangible book value at March 31, 2003 $.99
====
--------------------------------------------------------------------------------------------------- -----
Net tangible book value per share (deficiency) after merger with Whitco $(.54)
====
--------------------------------------------------------------------------------------------------- -----
Dilution as a result of the merger with Whitco $.55
====
--------------------------------------------------------------------------------------------------- -----
Dilution to the IPO shareholders after merger with Whitco based on IPO price $1.54
16
DIVIDEND POLICY
We have never declared or paid any dividends to the holders of our common
stock and we do not expect to pay cash dividends in the foreseeable future. We
currently intend to retain all earnings for use in connection with the
development of our business and for general corporate purposes. Our board of
directors will have the sole discretion in determining whether to declare and
pay dividends in the future. The declaration of dividends will depend on our
profitability, financial condition, cash requirements, future prospects and
other factors deemed relevant by our board of directors. In addition, our
ability to pay cash dividends in the future could be limited or prohibited by
the terms of financing agreements that we may enter into or by the terms of any
preferred stock that we may authorize and issue. Accordingly, you will have to
look to appreciation in the value of your securities to obtain a return on your
investment.
CAPITALIZATION
In February 2003, we entered into the Securities and Exchange Agreement
with Whitco Company, L.L.P. In accordance with the agreement, the partners of
Whitco will exchange all of their partnership units, including all options to
purchase partnership units, for 2,991,368 shares of common stock and options to
purchase 808,632 shares of common stock. The acquisition transaction will be
accounted for as a reverse acquisition.
The following table sets forth our capitalization as of March 31, 2003:
o on an actual basis and
o on a pro forma, as adjusted basis giving effect to:
o our acquisition of Whitco, pursuant to which we will issue:
o 2,991,368 shares
o 200,000 shares of common stock to Keating Investments, LLC as a fee in
connection with the Whitco transaction
March 31, 2003
------------------------------------------------------------
Wentworth III Whitco Adjustments Pro Forma
------------- ------------- -------------- ------------
Long-term debt.................................................... $ -- $ 1,414,106 $ -- $ 1,414,106
------------- ------------- -------------- ------------
Stockholders equity:
Preferred stock, par value $.01 per share; 10,000,000 shares
authorized, no shares issued and outstanding................. -- -- -- --
Partners' Contribution/Common stock, par value $.01 per share;
40,000,000 shares authorized, 200,000 (actual),
3,391,368 (pro forma)
shares issued and outstanding................................ 2,000 1,030,000 (998,086) 33,914
Paid-in capital................................................ 25,937 -- 1,360,831 1,386,768
(Accumulated deficit) retained earnings........................ (25,255) 271,822 (527,745) (281,178)
------------- ------------- -------------- --------------
Total stockholders' equity................................... 2,682 1,301,822 (165,000) 1,139,504
============= ============= ============== ==============
17
USE OF PROCEEDS
We sold an aggregate of 50,000 shares of common stock in our IPO at $1.00
per share. The gross proceeds from our IPO were $50,000, $45,000 of which has
been and remains in an escrow account maintained by Key Bank, National
Association in accordance with our escrow agreement and SEC Rule 419. The
expenses of our IPO totaled $32,280.95, composed of the following items:
Offering Expenses Breakdown
Initial Public Offering Reconfirmation Offering Total
-----------------------------------------------------------------------------------------------------------
Escrow Fee $250.00 $ - $ 250.00
SEC Registration Fee 11.95 0.00 11.95
Legal Fees 23,818.00 25,000.00 48,818.00
Printing & Filing Fees 1,018.00 500.00 1,518.00
Accounting Fees 5,745.00 10,000.00 15,745.00
Blue Sky Qualification Fees & Expenses 500.00 0.00 500.00
Transfer Agent Fees 500.00 250.00 750.00
Miscellaneous Fees & Expenses 438.00 250.00 688.00
Total 32,280.95 36,000.00 68,280.95
Such expenses are to be paid from the IPO proceeds upon release of such
proceeds from escrow. Offering expenses in excess of the net offering proceeds
shall be paid from the pro forma working capital subsequent to the transaction
with Whitco. If we do not complete the proposed acquisition of Whitco and do not
otherwise complete an acquisition transaction with another company and comply
with Rule 419, the escrow funds will be returned to the IPO investors in
accordance with Rule 419 promptly after February 6, 2004.
Offering Proceeds
Gross Offering 50,000 shares at $1.00 per share
Proceeds $50,000.00
Offering Expenses 68,280.95
Net Offering Proceeds (18,280.95)
The above listed use of proceeds represents our best estimate of the
allocation of the net proceeds from the sale of the shares sold in the IPO based
upon the status of our current plans and current economic conditions. Future
events, relevant changes in laws and regulations governing companies such as
Whitco and competitive activities affecting our business operations may make
shifts in allocation of funds necessary or desirable.
The expenses we anticipate incurring in connection with the reconfirmation
offering made under this prospectus are estimated to total $36,000, which does
not include expenses associated with the acquisition. Set forth below are the
types and amounts of expenses we anticipate incurring in the reconfirmation
offering:
Type of Expense Amount of Anticipated Expense
--------------- -----------------------------
Legal fees......................................... $ 25,000.00
Accounting fees.................................... 10,000.00
Printing costs..................................... 500.00
Transfer agent fee................................. 250.00
Miscellaneous fees and expenses.................... 250.00
-------------
Total expenses................................ $ 36,000.00
=============
We are subject to the reporting requirements of the Exchange Act and, in
accordance with these requirements, we are obligated to file reports, proxy
statements and other documentation with the SEC. We also 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.
These reports, proxy statements and other documentation will contain information
concerning the actual usage of the proceeds of our IPO and any changes in our
anticipated allocations of the proceeds from those set forth above.
18
PLAN OF OPERATION
We have no operating business and all our activities since inception
have been related to our formation and completing our initial public offering in
which we raised $50,000 of gross proceeds from the sale of 50,000 shares. Our
ability to continue operations is contingent upon completing a business
combination. To date, we have not incurred any material costs or expenses other
than those associated with formation of Wentworth, our IPO and this
reconfirmation prospectus. In November 2002, we completed our IPO. Pursuant to
Rule 419 promulgated under the Securities Act, the gross proceeds from the
offering of $50,000, less 10% for expenses incurred in connection with the IPO,
are being held in escrow and, as of December 31, 2002 we had cash on hand of
$47,125 including such escrowed funds. We will use the net proceeds of our IPO,
together with the income and interest earned thereon, if any, to pay for the
expenses of the IPO. We do not have discretionary access to any income on the
monies in the escrow account and stockholders will not receive any distribution
of the income or have any ability to direct the use or distribution of any such
income. Thus, any such income will cause the amount in escrow to increase. No
cash compensation has been paid to any officer or director in their capacities
as such. Since the role, if any, of present management after a business
combination is uncertain, we cannot determine what remuneration, if any, will be
paid to present management after a business combination.
If we do not complete a business combination within eighteen months
from the date of the commencement of our IPO, the escrow agent will return the
escrowed funds to the IPO investors on a proportionate basis, with interest, if
any, in accordance with SEC Rule 419.
We have entered into the agreement, dated as of February 12, 2003, with
Whitco Company, L.L.P. The agreement calls for our acquisition of the issued and
outstanding partnership units, and all options to purchase partnership units, of
Whitco in exchange for 2,991,368 shares of common stock and options to purchase
808,632 shares of common stock.
The closing of the transaction contemplated by the agreement is
conditioned upon a number of factors, including satisfactory due diligence
reviews, our filing and causing to become effective a post-effective amendment
to our registration statement on Form SB-2 in compliance with SEC Rule 419 and
reconfirmation of investment by at least two-thirds in interest of investors who
purchased shares in the IPO. The proceeds from our IPO currently held in escrow
will be released to us, and the shares sold will be released to the purchasers,
if we close the transaction contemplated by the agreement, our post-effective
amendment to our registration statement is declared effective and at least
two-thirds in interest of purchasers in the IPO reconfirm their investment in
Wentworth. No assurance can be given that the due diligence reviews contemplated
by the agreement will be completed satisfactorily, that our post-effective
amendment to our registration statement will be declared effective by the SEC,
that at least investors holding two-thirds of the shares purchased in our IPO
will reconfirm their investments in Wentworth or that all other conditions
necessary to close the transactions contemplated by the agreement will be
successfully completed and that we will acquire Whitco.
THE SECURITIES EXCHANGE AGREEMENT
We entered into the agreement with Whitco as of February 12, 2003.
Pursuant to the terms of the agreement, we intend to acquire Whitco through an
exchange of all of their 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. The options represent options issued to key employees of
Whitco from June 2000 through December 31, 2002. The options are converted on
the same basis as the common stock. The exercise price, on a converted basis, is
$0.30/share for 350,125 shares and $0.86 for 458,507 shares. The options will
continue under the original terms of the option agreement. If not previously
exercised, the options will expire over the years of 2011 to 2013. Whitco will
become a subsidiary of ours as a result of such transaction and will be our sole
operating business as a result of the exchange.
19
The completion of the acquisition is contingent upon, among other
things:
o all of the IPO investors reconfirming their purchases of shares
in our IPO;
o satisfactory results of due diligence reviews by all parties to the
acquisition transaction; and
o customary closing conditions.
A copy of the agreement is attached as Appendix A to this
reconfirmation prospectus. Neither you, nor any other stockholder of Wentworth,
are being asked to approve the agreement or the acquisition contemplated
thereby.
BUSINESS OF WHITCO
Overview
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 (OEM's) and
indirectly to other third parties through its own sales representatives. Whitco
seeks to become the preferred marketer and distributor of steel and aluminum
lighting pole structures and accessories, and may attempt to acquire or develop
subsidiaries to pursue additional market opportunities. Whitco believes the
necessary systems and people are in place to aggressively grow and expand in its
defined markets.
In June 2000, the assets of Whitco were acquired from its original owners
by an investment group led by Dennis H. Depenbusch, who currently serves as
Whitco's managing partner and is expected to become Chief Executive Officer of
Wentworth upon consummation of the exchange. 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
20
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 the DOT business area 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 through sales representatives from their 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. Whitco has the capability to join an OEM on national account bids.
In 2002, Whitco sold to approximately 32 OEM customers.
Whitco has contracts in place with approximately 76 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 purchase 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 between territory although all contracts
with lighting agencies are terminable on 30 days' notice. Only one individual
lighting agency accounted for more than 10% of Whitco's sales for the fiscal
year ended September 30, 2002, and no agency accounted for more than 10% of
total sales for the 12 cumulative months ended December 31, 2002. These agencies
primarily sell fixtures and Whitco's poles complement their product line. Whitco
works diligently to find the most 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 routed through the electrical distributor or
contractor. Terms are predominantly, net 30 days.
For the complete 12 months ended December 31, 2002, Lithonia Lighting, an
OEM customer, accounted for 16% of total revenues; no other single customer
accounted for more than 10% of total revenues. For the nine-month fiscal year
ended September 30, 2002, Lithonia Lighting accounted for 14% of total revenues
and one 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.
21
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. Whitco has the ability to engineer and design customized
products through its proprietary design and engineering capabilities. Once
completed, the lighting poles are shipped directly from the manufacturer to the
customer.
Employees
Whitco currently has twelve full-time employees, including its two
executive officers, three employees performing sales and marketing functions,
two performing engineering, drafting and quotations functions, one in production
control and dispatch and four performing customer service and clerical duties.
Accounting and finance services are currently outsourced. We also have sales
representative agreements in place with approximately 76 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
partnership interests in Whitco. There are approximately 241 options issued
through December 31, 2002. Vested options currently total approximately 118
partnership shares. Twenty percent (20%) of the non-vested options vest on each
anniversary date of the option grant. Thirty-five of the non-vested options
fully vest at such time as Whitco becomes subject to periodic reporting under
the Securities Exchange Act of 1934 or upon acquisition of a majority of the
partnership interests by a company subject to such periodic reporting. 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 17.5
Kevin B. Medlin Vice President Sales 7.0
Thomas Lach Vice President Engineering 7.0
Ben Mosqueda Manager Quotations/Drafting 3.5
Total 35.0
Henry Glover attended some of the partner meetings, however, he did not
have a vote as a partner and did not initiate or influence the decision to enter
into a business combination with Wentworth III. None of the other above-listed
option holders played any part during the Whitco-Wentworth business combination
process.
Upon termination of an employee, Whitco has the right to repurchase all
partnership units owned by such employee. This repurchase option terminates at
such time as Whitco becomes subject to periodic reporting under the Securities
Exchange Act of 1934 or upon acquisition of a majority of the partnership
interests by a company subject to such periodic reporting.
Trademark and Copyright Protection
Currently, Whitco is seeking trademark protection for its own logo as well
as the logo of Catalyst Lighting Group, which is expected to be the name of
Wentworth III subsequent to consummation of the transactions with Whitco. Whitco
has submitted its initial applications for these logos. With respect to any pole
designs or lighting fixtures Whitco may design, Whitco intends to seek patent
protection where applicable.
Business Strategy
Virtually all of Whitco's revenues are currently generated in the C&I
market. It is the intent of Whitco to continue serving this niche while seeking
to acquire or start new business ventures within this segment in an attempt to
increase market share. The focus on the C&I market is the result of Whitco's
historical expertise in this market and the fact that most of Whitco's lighting
agents and OEM customers are focused on this area.
Whitco is placing particular emphasis on the C&I market, and in
particular the sports, high mast and area lighting areas. 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 is 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.
Although our future plans may include a merger with or into, or an
acquisition of, other businesses serving the pole and lighting industries,
currently there are no plans or active discussions taking place regarding any
potential merger or acquisition with any entity. Our future plans may also
include entering niche parts of the lighting market in which we do not currently
compete, however, there are no concrete plans or strategies with respect to
taking any particular course of action or competing in any particular niche.
Competition
Whitco competes with pole manufacturers as well as those OEM's which
manufacture poles themselves. Whitco also competes with OEM's, including some
that are customers of Whitco on other jobs. In terms of sales, Whitco is
approximately in the bottom half of the top 10 pole manufacturing companies.
Whitco competes against exclusive pole manufacturers such as K-W Industries,
United Lighting Standards and Valmont Industries. Some OEM companies that also
manufacture poles include Hubbell Lighting, Cooper Lighting, Musco Lighting (in
the sports segment only) and Ruud Lighting. Whitco competes with other pole
companies on a price and service basis. Whitco competes by seeking the most
qualified, most connected sales agents and OEM's in a given territory.
History
Whitco Sales, Inc. dates its original history to 1969, when it was formed
by the Pritchard family in Fort Worth, Texas. Whitco was originally formed to
provide both lighting and pole products. During the 1980's, Whitco made the
decision to concentrate on steel pole products sold through agents and OEM's
throughout the United States. Whitco Company, L.L.P. , a partnership consisting
of three investors led by Dennis H. Depenbusch, was formed on June 27, 2000 and
acquired the assets of Whitco Sales Inc. from the Pritchard family on June 30,
2000. At the time of the acquisition, Whitco Sales, Inc., was an S Corporation
50% owned by James and Patsy Pritchard and 50% owned by James K. "Kip"
Pritchard. Upon acquisition of Whitco in June 2000, Whitco expanded its product
offering to include additional steel products as well as aluminum poles. In
2002, Whitco further expanded its product line to include pre-wired products for
the sports lighting segment. On May 1, 2002, two of the three original investors
were bought out by a replacement investor group again led by Dennis H.
Depenbusch. The original investors, along with Mr. Depenbusch, were Mega
Investment Group, LLC and Quest Financial Partners, LP. Their 2/3 partnership
interest was purchased on May 1, 2002 for $1.2 million through the sale of
partner units and the issuance of additional subordinated debt. Four individual
investors purchased partnership units for a cumulative price of $654,000 and
subordinated debt was issued to four individual investors for $546,000.
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
executive officers, based upon information they have supplied to us.
Dennis H. Depenbusch - Managing Partner
Mr. Depenbusch, 39, has been managing partner of Whitco Company, LLP since its
acquisition in June of 2000. Prior to his leading the acquisition of Whitco, he
was a Vice President for Euronet Worldwide from May 1995 to June 2000. Euronet
Worldwide is a provider of secure electronic financial transactions, ATM
software, point-of-sale outsourcing and mobile banking to a wide range of
industries. Mr. Depenbusch served as country manager from May 1995 to May 1998
in Poland and, from May 1998 to May 1999, served as Vice President in Germany,
overseeing expansion and acquisition activities for these countries. From May
1999 to May 2000, he was responsible for overseeing ATM deployment activities
and operational development for the United Kingdom. He also contributed to
Euronet's acquisition of venture capital financing and eventual listing on the
NASDAQ (EEFT). Mr. Depenbusch holds an MBA, Summa Cum Laude, and a BS in
Business from the University of Kansas. Mr. Depenbusch is expected to become the
Chief Executive Officer and Chairman of the Board of Directors of Wentworth upon
consummation of the merger.
Henry M. Glover - President/CEO
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 expected to become
President and a member of the Board of Directors of Wentworth upon consummation
of the merger.
23
Kevin B. Medlin - Vice President of Sales
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
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. They serve customers such as Whitco and also maintain their own
finished product sales representation base. They provide 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
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
Whitco is not a party to nor is it aware of any existing, pending or
threatened lawsuits or other legal actions.
Seasonality
The lighting industry is not seasonal in nature, but construction of the
facilities or roads where the lighting structures may be placed is seasonal
depending on the geographic location of the project.
24
Properties
Whitco leases space in Fort Worth, Texas. These facilities serve as its
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. The lease expires November 14, 2003.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF WHITCO
Securities Exchange Agreement
In February 2003, Whitco entered into the agreement with Wentworth III,
Inc. We will issue an aggregate of 2,991,368 shares of common stock and options
to purchase 808,632 shares of common stock for all of Whitco's issued and
outstanding partnership units, as well as those units for which options are
currently held. This transaction will be accounted for as a reverse acquisition
which results in the recapitalization of Whitco in as much as it is deemed to be
the acquiring entity for accounting purposes. Accordingly, the combination will
be recorded as a recapitalization of Whitco, pursuant to which Whitco will be
treated as the continuing entity for accounting purposes and the historical
financial statements presented will be those of Whitco. Upon the completion of
the transaction, Whitco will continue to operate as a wholly-owned subsidiary of
Wentworth.
Therefore, based on the above transaction, we have provided
management's discussion and analysis of financial condition and results of
operations for Whitco.
RESULTS OF OPERATIONS
Critical Accounting Policies and Estimates
Whitco's condensed financial statements have been prepared in accordance with
accounting principles generally accepted in the United States, which require
Whitco to make estimates and judgments that affect the reported amount of
assets, liabilities, revenues and expenses, and the related disclosures. A
summary of those significant accounting policies can be found in Whitco's Notes
to the Consolidated Financial Statements included in this report. The estimates
used by management are based upon their historical experiences combined with
management's understanding of current facts and circumstances. Certain of
Whitco's accounting policies are considered critical as they are both important
to the portrayal of Whitco's financial condition and the results of its
operations and require significant judgments on the part of management.
Management believes that the following represent the critical accounting
policies of Whitco as described in Financial Reporting Release No. 60,
"Cautionary Advice Regarding Disclosure About Critical Accounting Policies,"
which was issued by the Securities and Exchange Commission: inventory, goodwill,
allowance for doubtful accounts, and warranty policy.
Whitco states inventory at the lower of cost or market, determined under the
first-in, first-out method. Whitco maintains a significant amount of raw
material inventory to serve future order demand of customers. While management
believes its processes for ordering and controlling inventory are adequate,
changes in economic, or industry conditions may require Whitco to hold inventory
longer than expected or write outdated inventory off as the result of
obsolescence.
During fiscal 2001, Whitco amortized goodwill using a fifteen-year life.
Beginning January 1, 2002, Whitco adopted Statement of Financial Accounting
Standards No. 142 (SFAS 142) "Goodwill and Other Intangible Assets," and as a
result ceased amortizing goodwill. Whitco tests goodwill for impairment annually
or on an interim basis if an event or circumstance occurs between the annual
tests that may indicate impairment of goodwill. Impairment of goodwill will be
recognized in operating results in the period it is identified.
25
Whitco utilizes its best estimate for allowance for doubtful accounts based on
past history and accruing the expense as a percentage of sales. Whitco grants
credit to distributors of sports and area lighting poles located throughout the
United States of America. Collateral is generally not required for trade
receivables. While management considers Whitco's process to be adequate to
effectively quantify its exposure to doubtful accounts, changes in economic,
industry or specific customer conditions may require an adjustment of the
allowance for doubtful accounts.
Whitco's customers receive a one year product warranty for defects in material
and workmanship providing repair or replacement or refund of the purchase price.
Whitco provides an accrual as a reserve for potential warranty costs based on
historical experience and accruing as a percentage of sales. While management
considers Whitco's process to be adequate to effectively quantify its exposure
to warranty claims based on historical performance, changes in warranty claims
on a specific or cumulative basis may require Whitco to adjust its reserve for
potential warranty costs.
Six months ended March 31, 2003 compared to the six months ended March
31, 2002
The unaudited financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information. In our opinion, we have included all adjustments,
consisting only of normal recurring accruals, considered necessary for a fair
presentation.
Revenue. For the six months ended March 31, 2003, the recognized revenue of
Whitco was $6,574,408. For the six months ended March 31, 2002, the recognized
revenue of Whitco was $6,093,006. Cost of goods sold in the six months ended
March 31, 2003, was $4,394,957, which generated a gross margin of 33%, versus
32% for the six months ended March 31, 2002. The increase in sales can be
attributed to an increase in overall pole sales.
Other operating costs and expenses. For the six months ended March 31, 2003,
operating expenses totaled $2,242,950, compared to $1,707,765 for the six months
ended March 31, 2002, respectively. The increase in operating expenses resulted
from the increase in commissions expense paid, product development expense,
legal and accounting expenses, health insurance and travel and entertainment as
described below. Included in other operating costs and expenses are non-cash
costs related to amortization expense incurred of approximately $0 for the six
months ended March 31, 2003, and of $59,874 for the six months ended March 31,
2002. The decrease in amortization expense is the result of Whitco's adoption of
Statement of Financial Accounting Standards No. 142 (SFAS 142) in January 1,
2002. This change in policy resulted in the elimination of amortization of
goodwill.
Commission expense. For the six months ended March 31, 2003, commission expense
was $1,098,255, compared with $822,489 for the six months ended March 31, 2002.
The increase in commissions paid is the result of an increased mix of sales of
products to agency customers compared to the previous comparative period.
Product development expense. For the six months ended March 31, 2003, product
development expense was $123,929, compared with $0 for the six months ended
March 31, 2002. The increase in product development for the comparative
six-month period is principally attributable to the further development of
Whitco's sports lighting product offering.
Legal and Accounting Expense. For the six months ended March 31, 2003 was
$132,260, compared with $34,976 for the six months ended March 31, 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 proposed merger described herein.
Salaries and wages. For the six months ended March 31, 2003, salaries and wages
totaled $496,133, compared to $442,768 for the six months ended March 31, 2002.
The increase in salaries and wages can be attributed to additional personnel
hired during the first six months of the fiscal year.
Health insurance expense. For the six months ended March 31, 2003 was $56,349,
compared with $25,647 for the six months ended March 31, 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.
Travel and entertainment expense. For the six months ended March 31, 2003 travel
and entertainment expense was $65,665, compared with $39,650 for the six months
ended March 31, 2002. The increases in travel and entertainment expense for the
comparative periods reflect additional travel and customer visitations during
the period.
Interest expense. Interest expense for the six months ended March 31, 2003 was
$147,177, compared with $131,438 for the six months ended March 31, 2002. The
increase in interest expense for the comparative periods reflect the increase in
both the operating credit line as well as an increase in subordinated debt.
Year ended December 31, 2002 compared to the year ended December 31, 2001
In 2002, Whitco changed its fiscal year end from December 31, to September 30.
For purposes of a financial comparison of 12 month results, Whitco is combining
its September 30, 2002 9 month year end audited numbers with its 3 month
reviewed financial results. The combination of the pro-forma 12 months ended
December 31, 2002 is summarized in the following table.
---------------------------------------- ----------------- ---------------- ----------------- ---------------
Quarter 9 Months 12 Months 12 Months
Ended Ended Ended Ended
12/31/02 9/30/02 12/31/02 12/31/01
---------------------------------------- ----------------- ---------------- ----------------- ---------------
Sales $3,282,406 $10,243,036 $13,525,442 $11,784,438
---------------------------------------- ----------------- ---------------- ----------------- ---------------
Cost of Sales $2,172,735 $7,169,790 $9,342,525 $7,887,188
---------------------------------------- ----------------- ---------------- ----------------- ---------------
Gross Margin on Sales $1,109,671 $3,073,246 $4,182,917 $3,897,250
---------------------------------------- ----------------- ---------------- ----------------- ---------------
General Selling and Administrative
Expenses $1,104,146 $2,700,835 $3,804,981 $3,053,662
---------------------------------------- ----------------- ---------------- ----------------- ---------------
Amortization of Goodwill $0 $0 $0 $229,797
---------------------------------------- ----------------- ---------------- ----------------- ---------------
Income from Operations $5,525 $372,411 $377,936 $613,791
---------------------------------------- ----------------- ---------------- ----------------- ---------------
Interest Expense $71,519 $224,677 $296,196 $292,138
---------------------------------------- ----------------- ---------------- ----------------- ---------------
Income (Loss) Before Pro Forma Income ($65,994) $147,734 $81,740 $321,653
Taxes
---------------------------------------- ----------------- ---------------- ----------------- ---------------
Pro Forma Income Taxes $22,838 ($58,062) ($35,224) ($123,122)
---------------------------------------- ----------------- ---------------- ----------------- ---------------
Pro Forma Net Income (Loss) ($43,156) $89,672 $46,516 $198,531
---------------------------------------- ----------------- ---------------- ----------------- ---------------
27
Revenue. For the twelve month period ended December 31, 2002, the recognized
revenue of Whitco was $13,525,442. For the year ended December 31, 2001, the
recognized revenue of Whitco was $11,784,438. Cost of goods sold for the twelve
month period ended December 31, 2002 was $9,342,525, which generated a gross
margin of 30.9%, versus 33.0% in 2001. The decrease in gross margin percentage
for the comparative twelve-month period is principally attributable to the
product mix sold in 2002 vs. 2001 as lower margin category products were sold
during 2002. One particular project in 2001 contributed primarily to this
difference; the project, shipped in the quarter ended December 31, 2001 resulted
in revenue totaling approximately $1.3 million with over 50% gross margin.
General Selling and Administrative Expenses. For the twelve month period ended
2002, General Selling and Administrative expenses totaled $3,804,981 compared to
$3,053,662 for the year ended December 31, 2001, respectively. The increase in
operating expenses resulted from the salaries, wages and benefits, increase in
commissions, product development, travel and entertainment, accounting, legal
and professional fees.
Salaries, Wages and Benefits for the twelve month period ended December 31, 2002
was $1,158,929 compared with $820,588 for the year ended December 31, 2001. The
increase in salaries, wages and benefits reflects primarily an increased
headcount dedicated to the sales and administration effort at Whitco. Salaries,
exclusive of payroll taxes and fees were $950,899 for the twelve month period
ended December 31, 2002, and $721,730 for the year ended December 31,2001. As a
percentage of gross sales, salaries, wages and benefits were 8.6% of sales in
the twelve month period ended December 31, 2002, and 7.0% of sales for the year
ended December 31, 2001.
Commissions for the twelve month period ended December 31, 2002 was $1,900,600
compared with $1,705,684 for the year ended December 31, 2001. The increase in
commission expenses reflects increases in overall sales volume. As a percentage
of gross sales, commissions were 14.1% of sales in the twelve month period ended
December 31, 2002, and 14.5% of sales for the year ended December 31, 2001.
Product Development for the twelve month period ended December 31, 2002 was
$131,483 compared with $4,255 for the year ended December 31, 2001. The increase
in product development expense reflects additional investment in Whitco's
further development of a sports lighting line.
Travel and Entertainment for the twelve month period ended December 31, 2002 was
$113,502 compared with $58,619 for the year ended December 31, 2001. The
increase in travel and entertainment expense reflects additional sales travel
related to additional customer and supplier trips taken during the year.
Accounting, Legal and Professional Fees for the twelve month period ended
December 31, 2002 was $113,736 compared with $67,700 for the year ended December
31, 2001. The increase in Accounting, Legal and Professional Fees reflects
accounting and legal expenses related to the current merger described herein.
With respect to the $100,000 investment banking fee to be paid to Keating
Investments, LLC, such fee is taken into account as a cash requirement on a
going-forward basis and Whitco believes it has sufficient sales and earnings
through the ending of its fiscal year and the term indicated by the investment
banking fee to fund this obligation. Further, assuming the proposed merger is
consummated, Whitco will not be incurring the professional fees required to
complete this Form SB-2, thereby freeing up additional funds to satisfy this
obligation.
Included in general and administrative expenses are non-cash costs related to
amortization expense incurred of approximately $0 for the twelve months ended
December 31, 2002, and $229,797 for the year ended December 31, 2001. The
decrease in amortization expense is the result of Whitco's adoption of Statement
of Financial Accounting Standards No. 142 (SFAS 142) in January 1, 2002. This
change in policy resulted in the elimination of amortization of goodwill. Had
Whitco recorded amortization expense during the twelve months ended December 31,
2002, unaudited pro forma net income (loss) would have been ($148,057).
Interest expense for the twelve month period ended December 31, 2002 was
$296,196 compared with $292,138 for the year ended December 31, 2001. The
difference was attributable to an increase of subordinated debt as well as the
average increase of the operating credit line for the comparative periods.
28
Net income after pro forma income taxes for the 12 month period ended December
31, 2002 and year ended 2001 was $46,516 and $198,531, respectively.
Liquidity and Capital Resources
During the period ended March 31, 2003, Whitco's working capital deficit
was $404,785 which represented a decrease in working capital of $265,285 over
September 30, 2002. Trade receivables decreased from $2,280,109 at September 30,
2002 to $2,014,824 at March 31, 2003, including provision for bad debts of
$54,442 at September 30, 2002 and $58,192 at March 31, 2003. Receivables
decreased in reflection to a decrease in sales as the result of seasonality.
Accrued liabilities decreased by $222,543. These decreases were off-set by an
increase in accounts payable of $364,550, an increase in inventory of $461,611,
an increase in revolving note payable of $321,954 and an increase in pre-paid
expenses of $40,247. The increase in payables and inventory was attributed to
orders placed for delivery of product in 2003 as well as forecast demand in
orders for the peak construction season first few months of 2003. The changes in
accrued liabilities, revolving note payable and pre-paid expenses are related to
normal timing of the different category of accounts through this quarter. The
working capital deficit reflected above represents the addition of inventory and
associated payables as Whitco has increased available inventory for rapid
shipment to customers during the peak summer building season.
Cash provided by (used in) operations for the six months ended March 31,
2003, the six months ended March 31, 2002, nine months ended September 30, 2002
and year ended December 31, 2001 was ($262,190), $103,433, $397,110 and $327,469
respectively. The cash used by operations for the six months ended March 31,
2003 resulted primarily from a loss of $210,676, a decrease in trade receivables
of $265,285, an increase in inventories of $461,611 and a decrease in accrued
liabilities of $197,560. Accrued liabilities decreased primarily as the result
of payment of commissions. Prepaid expenses and other expenses increased by
$38,230, accounts payable increased by $364,550. For the six month period ended
March 31, 2002, cash provided by operations resulted primarily from net income
of $106,444, an increase in accounts receivable of $339,418 and a decrease in
accounts payable of $205,666. These decreases were off-set by decreases in
inventory of $382,430 and an increase in other accrued liabilities of $93,295.
Prepaid expenses and other expenses decreased by $3,889. For the nine month
period ended September 30, 2002, cash provided by operations resulted from net
income of $147,734, and an increase in accounts payable of $720,595 and other
accrued expenses of $223,004. These increases were offset by an increase in
accounts receivable of $813,817. Accrued liabilities increased as the result of
timing of commission payments. Also, inventory decreased by $34,068, prepaid
expenses and other expenses decreased by $21,938, and bad debt expense decreased
by $32,406. For the year ended December 31, 2001, cash provided by operations
resulted from net income of $321,653 depreciation and amortization of $249,415,
and an increase in other accrued liabilities of $174,631. Accrued liabilities
increased as the result of timing of commission payments. Depreciation and
amortization is higher compared to other periods as the result of Whitco's
adoption of Statement of Financial Accounting Standards No. 142 (SFAS 142) in
January 1, 2002. This change in policy resulted in the elimination of
amortization of goodwill. These increases were off-set by increases in
inventories of $190,183, and decreases in accounts payable of $219,257.
Increases were also reported in prepaid expenses and other by $14,849 and
off-set by allowance for bad debt of $9,048. Receivables increased by $2,989.
Primarily as a result of purchases of property and equipment, cash used in
investing activities for the six months ended March 31, 2003, the six months
ended March 31, 2002, nine months ended September 30, 2002 and year ended
December 31, 2001 was ($13,718), ($18,626), ($74,307) and ($26,934)respectively.
Cash provided/(used) in financing activities for the six months ended March
31, 2003, the six months ended March 31, 2002, nine months ended September
30,2002 and year ended December 31, 2001 was $275,908, ($84,804), ($322,803) and
($308,679) respectively. For the six months ended March 31, 2003 there was an
increase in revolving notes payable of $321,954. For the six months ended March
31, 2002, there was a decrease in revolving notes payable of $49,281 and
payments on short-term and long-term notes payable of $35,523. For the nine
months ended September 30, 2002, cash flows decreased as the result of
redemption of partner's interest of $1,200,000 to purchase the partnership
interests of two partners. This decrease was primarily matched by an increase
from the proceeds of long-term debt of $546,000 and the sale of partnership
interest of $655,000. Payments on short-term and long-term notes payable and
revolving note payable was $224,527 and $99,276, respectively.
For the year ended December 31, 2001, there was a $213,565 increase in revolving
note payable off-set by payments on short-term and long-term notes payable of
$228,644 and partners' distributions of $293,600. The partner's distributions
were made to pay partner's tax liabilities incurred during the year.
Material cash requirements for the next twelve months not in the ordinary course
of business relate to the expenses incurred in connection with the transactions
contemplated herein. This is expected to be an additional $180,000 through
September 30, 2003. Regarding repayment of debt, over the next 12 months
Whitco's current maturities of long term debt are $257,646 of subordinated debt.
One $200,000 payment is due on June 30, 2003, while the rest is spread evenly
over the entire year. Wentworth intends to fund future payments on these
obligations through operational cash flow and further utilization of its
existing credit facility. Current debt repayments can be paid through Whitco's
cash flow or the additional availability afforded through the secured line of
credit. Whitco, during the last six months of each fiscal year, encounters peak
sales and earnings as commercial construction hits the summer season nationwide.
Whitco currently has a $2,000,000 credit facility with PNC Bank, evidenced by a
demand promissory note. The outstanding balance at December 31, 2002 was
$1,172,105 and the current balance is approximately $1.4 million. Whitco can
borrow the lesser of $2,000,000 or the aggregate of 80% of eligible accounts
receivable and 50% of eligible inventory as defined in the agreement with PNC.
Whitco is currently in violation of clauses relating to (1) Whitco having a
tangible net worth (as defined in the PNC Agreement) of not less than $300,000,
(2) the ratio of (Total Debt - Subordinated Debt) to (Book Net Worth +
Subordinated Net Worth - Intangible Assets) is greater than 8 to 1 and (3) cash
flow coverage shall not be below 1.0 to 1.0. As a result of this default, PNC
can call the note, although the note could have been called at any time in any
event as it is a demand note. Whitco is in active negotiations with alternative
lenders and has received some commitment letters indicating interest in this
credit facility and will actively pursue alternative lenders should the note
with PNC be called. Consequences to Whitco will consist of having to immediately
put in place a new credit facility in an amount sufficient to cover the entire
PNC credit facility. Whitco has received alternative lender proposals to provide
coverage to meet or exceed the outstanding PNC note.
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
Whitco's financial position or results of its operations.
30
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 Whitco.
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. Whitco 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. Whitco 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.
Certain Factors That May Affect Future Results
This report contains forward-looking statements and actual results could
differ materially from those projected in the forward-looking statements as a
result of the risk factors set forth in this prospectus. Whitco's future
operating results may be affected by a number of factors, including general
economic conditions in both foreign and domestic markets, cyclical factors
affecting the industry, lack of growth in Whitco's end-markets, the ability to
comply with government regulations, failure to manage its business and the
ability to sell both new and existing products at a profitable yet competitive
price.
The industry in which Whitco operates is highly competitive and Whitco
expects such competition to continue in the future. Most of Whitco's competitors
are larger and have substantially greater financial, technical and marketing
resources.
WENTWORTH MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATION
Business
We were organized under the laws of the State of Delaware on March 7,
2001, to pursue a merger, acquisition or other business combination with an
operating business. Our principal business objective is to seek long-term growth
potential through the acquisition of a business rather than immediate,
short-term earnings. On February 12, 2003, we entered into an agreement with
Whitco Company, L.L.P. to merge with a newly formed, wholly owned subsidiary.
Since our organization, our activities have been limited to the initial sale of
shares of common stock in connection with our organization, the preparation of
the registration statement and the prospectus for our initial public offering,
reviewing various businesses and negotiating a merger agreement with Whitco. We
have not engaged in any substantive commercial business. We maintain our office
at 650 So. Cherry Street, Suite 420, Denver, Colorado 80246. Our telephone
number is (303) 320-1870.
Plan of Operation
We are currently in the development stage. We have no operating
business, and all our activities since inception have been related to our
formation and completing our initial public offering in which we raised $50,000
of gross proceeds from the sale of 50,000 shares. Our ability to continue
operations is contingent upon completing a business combination. To date, we
have not incurred any material costs or expenses other than those associated
31
with formation of Wentworth and the IPO, which we completed in November 2002.
Pursuant to Rule 419 under the Securities Act, the gross proceeds from the
offering of $50,000, less 10%, are being held in escrow and, as of December 31,
2002, we had cash on hand of $47,125 including such escrowed funds. We will use
the net proceeds of the IPO, together with the income and interest earned
thereon, if any, to pay the costs associated with the Offering. We do not have
discretionary access to any income on the monies in the escrow account and
stockholders will not receive any distribution of the income or have any ability
to direct the use or distribution of any such income. Thus, any such income will
cause the amount in escrow to increase. No cash compensation has been paid to
any officer or director in their capacities as such. Since the role of present
management after a business combination is uncertain, we cannot determine what
remuneration, if any, will be paid to present management after a business
combination.
If we do not complete a business combination within eighteen months
from the date of the commencement of the IPO, the escrow agent will return the
escrowed funds to the investors on a proportionate basis, with interest, if any,
in accordance with SEC Rule 419. We anticipate being able to effect only one
business combination, due primarily to our limited financing, and the dilution
of interest for present and prospective stockholders. This lack of
diversification should be considered a substantial risk in investing in us,
because it will not permit us to offset potential losses from one venture
against gains from another.
We have entered into the agreement, dated as of February 12, 2003, with
Whitco Company, L.L.P. The agreement calls for our acquisition of all of the
issued and outstanding partnership units and options to purchase partnership
units for an aggregate of 3,800,000 shares and options to purchase shares of
common stock, consisting of 2,991,368 shares of common stock to be issued and
808,632 options to purchase common stock. Whitco is a national manufacturer and
seller of lighting poles for areas of the outdoor lighting industry, including
sports arenas, area lighting, such as shopping mall parking lots, and roadway
lighting. We intend to operate Whitco as a wholly-owned subsidiary upon
completion of the transaction contemplated by the agreement.
The closing of the transaction contemplated by the agreement is conditioned
upon a number of factors, including satisfactory due diligence reviews,
regulatory approvals, as necessary, our filing and causing to become effective a
post-effective amendment to our registration statement on Form SB-2 in
compliance with SEC Rule 419 and reconfirmation by the IPO purchasers of their
investment. Under Rule 419, we cannot acquire a target business unless its fair
value represents 80% of the Offering proceeds. In addition, the Colorado
Securities Act further requires, among other things, that the proceeds of the
Offering not be removed from escrow until 50% of the gross proceeds of the
Offering are committed to one or more specific lines of business. To determine
the fair market value of a target business, our management has examined the
financial statements, including balance sheets and statements of cash flow and
stockholders' equity, of Whitco, focusing attention on its assets, liabilities,
revenue and net worth, as well as taking into account the business plan,
opportunity for growth and other measures generally used to evaluate businesses.
Upon the consummation of the transaction with Whitco, our management will
change. It is possible that, after we successfully consummate the exchange,
Whitco may desire to employ or retain one or a number of members of our
management or our directors for the purposes of providing services to the
surviving entity. However, we have adopted a policy whereby the offer of any
post-transaction employment to members of management will not be a consideration
in our decision to undertake the Whitco transaction. Each member of management
has agreed to disclose to the Board of Directors any discussions concerning
possible employment by Whitco following the transaction and to abstain from
voting on the transaction. To date, Whitco has not had any discussions with, nor
made any offers of employment to, any officers or members of the Board of
Directors of Wentworth.
The proceeds from the IPO currently held in escrow will be released to us,
and the shares sold in the IPO released to the purchasers, if we close the
transaction contemplated by the agreement, our post-effective amendment to our
registration statement is declared effective and at least two-thirds in interest
of the purchasers in the offering reconfirm their investment in Wentworth. No
assurance can be given that the due diligence reviews contemplated by the
agreement will be completed satisfactorily, that our post-effective amendment to
our registration statement will be declared effective by the SEC, that at least
two-thirds in interest of the purchasers in the offering will reconfirm their
investments in Wentworth or that all other conditions necessary to close the
transaction contemplated by the agreement will be successfully completed and
that we will acquire Whitco.
32
In analyzing prospective business combinations, we have considered such matters
as:
o available technical, financial, and managerial resources,
o working capital and other financial requirements,
o history of operations, if any,
o prospects for the future,
o nature of present and expected competition, o the quality and experience of
management services which may be available and the depth of that
management,
o the potential for further research, development, or exploration, o specific
risk factors not now foreseeable but which then may be o anticipated to
impact on our proposed activities,
o the potential for growth or expansion, o the potential for profit,
o the perceived public recognition or acceptance or products or services and
name identification and other relevant factors.
As part of our investigation, our officers and directors have met
personally with Whitco's management and key personnel, checked references of
management and key personnel and taken other reasonable investigative measures,
to the extent of our limited financial resources and management expertise.
Our Initial Public Offering
We completed our initial public offering in November 2002 and sold a total
of 50,000 shares of common stock at a price of $1.00 per share. All of the
shares were sold for our benefit and there were no selling stockholders in the
IPO. The $50,000 proceeds of the IPO, less 10%, or $5,000, which was disbursed
to us for expenses, were placed into escrow in accordance with Rule 419 under
the Securities Act. There was no underwriter for the IPO. Accordingly, no
underwriter commissions, underwriter expenses or dealer allowances were paid in
connection with the IPO. Other than the $5,000 disbursed to us for expenses, no
other amounts have been disbursed to us as Rule 419 requires us, as a "blank
check" company, to hold the proceeds from our IPO, less 10% for payment of
expenses incurred in connection with the IPO, in escrow pending the earlier of
the (a) expiration of an eighteen month period commencing on the date on which
the registration statement for our IPO was originally declared effective or (b)
reconfirmation by at least two-thirds in interest of the investors in our IPO of
their respective purchases in the IPO following receipt by these investors of a
prospectus containing required information and disclosures concerning, among
other matters, the results of the IPO and our proposed acquisition of one or
more businesses or assets that will constitute our business and for which the
fair value of the business or net assets to be acquired represents at least 80%
of the maximum proceeds to be received from the IPO. All of the $5,000 disbursed
to us for payment of expenses has been paid to the accountants as compensation
for services provided in connection with the IPO. No part of the $5,000 was paid
to officers, directors, promoters, controlling shareholders or affiliates.
MANAGEMENT
Executive Officers and Directors
Wentworth III, Inc.
Set forth below is Wentworth's current executive officers and directors, their
ages and principal positions with Wentworth.
Name Age Position
--------------------- --- ----------------------
Kevin R. Keating (1) 62 President, Chief
Financial Officer and
Director
Spencer I. Browne (1) 51 Secretary and Director
--------------------
(1) May be deemed our "Promoters" as that term is defined under the Securities
Act.
Kevin R. Keating 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
33
Exchange member firm. Since 1982, he has been associated with a variety of firms
as a 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 directorships in the following reporting companies:
Wentworth I, Inc. and iVideoNow, Inc. Mr. Keating is expected to remain a
director following consummation of the transactions with Whitco.
Spencer I. Browne is a principal of Strategic Asset Management, LLC, a privately
owned investment firm which he founded in November 1996. Prior to that date, Mr.
Browne held various executive and management positions with several publicly
traded companies engaged in businesses related to the residential and commercial
mortgage loan industry. From August 1988 until September 1996, Mr. Browne served
as President, Chief Executive Officer and a director of Asset Investors
Corporation (AIC), a New York Stock Exchange traded company he co-founded in
1986. He also served as President, Chief Executive Officer and a director of
Commercial Assets, Inc., an American Stock Exchange traded company affiliated
with AIC, from its formation in October 1993 until September 1996. In 1999, AIC
acquired Commercial Assets, Inc. and changed its name to American Land Lease,
Inc. (ANL). In addition, from June 1990 until March 1996, Mr. Browne served as
President and a director of M.D.C. Holdings, Inc., a New York Stock Exchange
traded company and the parent company of a major homebuilder in Colorado. Mr.
Browne also has served as a director of Annaly Management, Inc. since 1997, a
New York Stock Exchange traded company, Internet Commerce Corporation, a Nasdaq
traded company, since October 2001 and Mego Financial Corp., a Nasdaq traded
company, since January 2002. Mr. Browne received a Bachelor of Economics degree
from the University of Pennsylvania's Wharton School of Business in 1971 and
attained a J.D. Degree, Cum Laude from Villanova University School of Law in
1974. Mr. Browne is a director of Wentworth III, Inc., Wentworth II, Inc. and
Wentworth I, Inc., and holds other directorships in the following reporting
companies: Annaly Mortgage Management, Inc., Internet Commerce Corporation, Mego
Financial Corp. and iVideoNow, Inc.
Dennis H. Depenbusch, 39, is currently the managing partner and Chief Executive
Officer of Whitco Company, L.L.P. He has held these positions since June 2000,
when he led the acquisition of Whitco from its then-current owners. Prior to his
leading the acquisition of Whitco, he was a Vice President for Euronet Worldwide
from May of 1995 to June of 2000. During his tenure with Euronet, a technology
company based in Leawood, Kansas, he assisted in building its country operations
in Poland, Germany and the United Kingdom, as well as contributed to Euronet's
acquisition of venture capital investment 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. Mr. Depenbusch is expected to become the Chief
Executive Officer and Chairman of the Board of Directors of Wentworth upon
consummation of the acquisition of Whitco.
Henry 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 expected to become
President and a member of the Board of Directors of Wentworth upon consummation
of the merger.
34
Mary Titus, 43, is expected to become a director of Wentworth and a member of
the audit committee upon successful completion of the transaction with Whitco.
Since December 2000, Ms. Titus has worked for uRoam Corporation, a web based
remote access provider, in Sunnyvale, CA. Ms. Titus is currently the Chief
Financial Officer, Vice President of Administration and the corporate Secretary
for uRoam, handling all finance, human resource and corporate compliance
matters. From October 1999 through June 2000, Ms. Titus was the Chief Financial
Officer, Vice President of Administration and the corporate Secretary for
healthshop, an Internet based retailer of health products. From September 1998
through January 1999, Ms. Titus was Chief Financial Officer and the corporate
Secretary for Crag Technologies, a San Jose based data storage company, where
she was responsible for all finance and corporate compliance matters. From April
through August 1998, Ms. Titus handled integration and strategic acquisition
matters for Adaptec, following its acquisition of Ridge Technologies. Prior to
that, Ms. Titus handled all finance, securities and acquisition matters at Ridge
Technologies, a redundant storage controller company located in San Jose, CA.
Tracy B. Taylor, 49, is expected to become a director of Wentworth and a member
of the compensation committee upon successful completion of the transaction with
Whitco. 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.
Management Following The Whitco Transaction
Management of Wentworth following consummation of the transactions with Whitco
is currently expected to be as follows:
Name Position
- --------------------- ----------------------
Dennis H. Depenbusch Chief Executive Officer
Henry Glover President
Currently, no other executive officers of Wentworth are contemplated, however,
all current employees of Whitco are expected to continue in their current
positions with Whitco, as set forth herein.
Other Blank Check Offerings
Kevin R. Keating, our President and a director, is involved as an officer,
director, founder, promoter and principal stockholder of Wentworth I, Inc. and
Wentworth II, Inc., which are also blank check companies. Mr. Browne, our
Secretary and a director, is also involved as an officer, director, founder,
promoter and principal stockholder of Wentworth II, Inc. and Wentworth I, Inc.
Each of these individuals works to evaluate potential business combinations with
respect to each of the blank check companies with which such individual is
affiliated. It is anticipated that Mr. Keating will remain a director of
Wentworth III following the transactions with Whitco and that both Mr. Keating
and Mr. Browne will be involved as officers, directors, founders, promoters and
principal stockholders of other blank check companies in the future.
Kevin R. Keating holds 125,000 shares of common stock of Wentworth I, Inc.,
which he purchased at a price of $0.05 per share, for an aggregate purchase
price of $6,250. After the offering of common stock by Wentworth I, Mr. Keating
held 62.5% of the outstanding shares of stock of Wentworth I. Mr. Keating holds
90,000 shares of Wentworth II, Inc. which he purchased at a price of $0.05 per
share for an aggregate purchase price of $4,500. He presently holds 60% of the
outstanding shares of common stock of Wentworth II, but after the completion of
Wentworth's offering of common stock he will hold 45% of the outstanding shares
of common stock. Mr. Keating has not yet disposed of any shares of common stock
of Wentworth I or Wentworth II.
35
Spencer I. Browne holds 60,000 shares of Wentworth II, Inc. which he purchased
at a price of $0.05 per share for an aggregate purchase price of $3,000. He
presently holds 40% of the outstanding shares of common stock of Wentworth II,
but after the completion of that company's offering of common stock he will hold
30% of the outstanding shares of common stock. Mr. Browne has not yet disposed
of any shares of common stock of Wentworth II. Mr. Browne also holds 25,000
shares of Wentworth I, Inc., which he purchased at a price of $0.05 per share
for an aggregate purchase price of $1,250.00.
There have been no material payments to Mr. Keating or Mr. Browne in connection
with any affiliation with the above mentioned blank check companies. In
addition, there is currently no trading market for the securities of either
Wentworth I or Wentworth II.
Executive Compensation
Wentworth III, Inc.
Since our inception, we have paid no cash compensation to our officers or
directors for serving in such capacities. We do not anticipate compensating our
officers and directors prior to completing our acquisition of Whitco.
Whitco Company, LLP
Summary Compensation Table
The following table sets forth information regarding the compensation paid
during the years ended December 31, 2002, 2001, and 2000 by Whitco Company, LLP
to Dennis H. Depenbusch and Henry Glover. Mr. Depenbusch and Mr. Glover will be
both Board Members and officers of the merged company. There are no other
anticipated officer assignments at the present time.
Name and All Other Year Other
Principal Positions Ended Annual Securities
Compensation Dec 31, Salary Bonus Compensation Underlying
($) ($) ($) Options (#)
Dennis Depenbusch
Managing Partner 2002 $130,000 $0 $0 0
Henry Glover
President 2002 $130,000 $0 $24,706(1) 57.125
Dennis Depenbusch
Managing Partner 2001 $100,000 $0 $0 0
Henry Glover
President(2) 2001 $0 $0 $0 0
Dennis Depenbusch
Managing Partner(3) 2000 $50,000 $0 $0 0
(1) Represents compensation related to relocation expenses associated with the
hiring of Mr. Glover
(2) Henry Glover began employment with Whitco on January 2, 2001
(3) Whitco Company, LLP acquired Whitco Sales, Inc. on June 30, 2000
Option Grants in Six Months Ended March 31, 2003 and Last Fiscal Year Ended
September 30, 2002
No options to purchase partner units were granted to Dennis Depenbusch in the
six months ended March 31, 2003 and the fiscal year ended September 30, 2002.
For the six months ended March 31, 2003, options to purchase 17.5 partner units
were granted to Henry Glover at a strike price of approximately $2,890 per unit.
These options, on a converted basis represent approximately 22,736 shares at a
strike price of $0.86 per share. These options vest equally over 5 years and can
fully vest when Whitco acquires a majority interest of a company that is subject
to the periodic reporting under the Securities Exchange Act of 1934.
For the fiscal year ended September 30, 2002, options to purchase 57.125 partner
units were granted to Henry Glover at a strike price of approximately $2,890 per
unit. These options, on a converted basis represent 74,215 shares at a strike
price of $0.86 per share. These options vest equally over a 5 year period and
can only fully vest in the event Whitco receives an offer to sell substantially
all of its assets which offer Whitco desires to accept.
Aggregate Option Exercises in Six Months Ended March 31, 2003 and Last Fiscal
Year Ended September 30, 2002
No options to purchase Whitco partnership units were exercised by Dennis
Depenbusch, Henry Glover or any employee during the six months ended March 31,
2003 or the fiscal year ended September 30, 2002.
Compensation of Directors
Whitco Company, LLP is a Limited Liability Partnership and has no directors.
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.
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 debt for the periods set forth below consisted of the
following:
March 31, 2003 September 30,
2002
--------------- ----------------
Noninterest bearing note payable to an individual, also an employee of
Whitco, Kip Pritchard, discounted at 6.22% (unamortized discount of
$16,834 and $20,207 at March 31, 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. 185,377 222,175
Note payable to an individual with indirect ownership in Whitco, note was
assigned to a nonrelated limited partnership effective December 27, 2001,
principal due July 31, 2005, interest payable monthly at a fixed rate of
15%. This note was issued on June 30, 2000 in connection with the
purchase of Whitco from the Pritchard family. 700,000 700,000
Note payable to Celestine C. Depenbusch, the mother of Dennis H.
Depenbusch, principal due July 31, 2005, interest payable monthly at a
fixed rate of 15%. This note was issued on June 30, 2000 in connection
with the purchase of the Whitco from the Pritchard family. - 50,000
Subordinated, unsecured 15% note payable to a partner, Larry Doskocil,
due April 30, 2004. This note was issued on May 1, 2002 in connection
with the buy-out of certain partnership interests of Whitco. - 250,000
Subordinated, unsecured 15% note payable to a partner, Larry Doskocil, due
April 30, 2007. This note was issued on May 1, 2002 in connection with the
buy-out of certain partnership interests of Whitco. 20,000 20,000
Subordinated, unsecured 15% note payable to Dennis H. Depenbusch, due April
30, 2007. This note was issued on May 1, 2002 in connection with the
buy-out of certain partnership interests of Whitco. - 76,000
Subordinated, unsecured 15% note payable to a partner, Jacqueline
Middlecamp, due April 30, 2007. This note was issued on May 1, 2002 in
connection with the buy-out of certain partnership interests of Whitco. 50,000 50,000
Subordinated, 15% unsecured note payable to Kip Pritchard, due April 30,
2007. This note was issued on May 1, 2002 in connection with the buy-out of
certain partnership interests of Whitco. 150,000 150,000
------------- ---------------
$ 1,105,377 $ 1,518,175
============= ===============
During the six months ended March 31, 2003 and 2002, the nine months
ended September 30, 2002 and the year ended December 31, 2001, Whitco
had $24,000, $33,375, $27,875 and $0, respectively, of interest expense
on notes due to related parties.
OTHER RELATED PARTY TRANSACTIONS:
During the six months ended March 31, 2003 and 2002, the nine months
ended September 30, 2002 and for the year ended December 31, 2001,
Whitco paid $30,000, $12,000, $24,000 and $24,000, respectively, for
accounting and administrative services to an entity related through
common ownership. The common ownership ended May 1, 2002.
During the six months ended March 31, 2003 and 2002, the nine months
ended September 30, 2002 and the year ended December 31, 2001, Whitco
had sales of $235,823, $274,676, $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 $43,058 and
$24,894 at March 31, 2003 and 2002, respectively.
Celestine C. Depenbusch is the mother of Whitco's Managing Partner,
Dennis H. Depenbusch. Celestine C. Depenbusch currently owns approximately
140.89 partner units of Whitco, representing approximately 15.78% of the
approximately 892.83 outstanding shares of Whitco. Celestine Depenbusch
exercises 100% voting power and control over all 140.89 partner units owned by
her.
On October 9, 2001, Kevin R. Keating, our President, Chief Financial
Officer and a director, purchased 90,000 shares of common stock for $.05 per
share, or an aggregate of $4,500. On the same day, Spencer I. Browne, our
Secretary and a director, purchased 60,000 shares of common stock for $.05 per
share, or an aggregate of $3,000.
The sole finder is Keating Investments, LLC, a California limited liability
company and a registered broker-dealer. Timothy J. Keating, the son of our
President, Kevin R. Keating, is the Managing Member of, and holds approximately
an 87% interest in, Keating Investments, LLC. Keating Investments has an
agreement with Whitco to provide general financial advisory services with regard
to the proposed acquisition of Whitco by Wentworth. Keating Investments may also
act as exclusive placement agent in connection with a later financing by Whitco,
on terms and conditions to be negotiated at a later date. Keating Investments
will advise and assist Whitco in identifying and/or evaluating various financial
alternatives that may be available to it, including without limitation,
additional public or private sales of equity or debt securities, or such other
form of financial transaction Keating believes may be of possible interest to
Whitco. Keating will render such other financial advisory and investment banking
services as may from time to time be agreed upon by Keating and Whitco.
Whitco shall pay to Keating:
(a) an investment banking fee of $100,000, which shall be due and payable in 10
monthly payments of $10,000 each beginning 30 days after Whitco's common stock
begins trading on the Over-the-Counter Bulletin Board, (b) upon closing of the
transactions between Wentworth and Whitco, two hundred thousand (200,000) shares
of restricted Wentworth common stock, having piggyback registration rights on
customary terms, (c) a cash placement fee equal to 10% of the securities placed
by Keating upon the closing of any offering of Whitco's securities, (d) a
non-accountable expense allowance equal to 3% of the total amount of the
securities placed by Keating upon the closing of any offering and (e) $1,000 as
an expense advance to Keating for part of its due diligence expenses. In
addition, Whitco shall issue five-year common stock purchase warrants entitling
Keating to purchase up to 10% of the securities placed by Keating at an exercise
price of 100% of the per share price of the placement, with the common stock
underlying such warrants having piggyback registration rights on customary
terms. The above fee is taken into account as a cash requirement on a
going-forward basis and Whitco believes it has sufficient sales and earnings
through the end of its fiscal year and the term indicated by the investment
banking fee to fund this obligation. Further, assuming the merger is
consummated, Whitco will not be incurring the professional fees required to
complete this Form SB-2, thereby freeing up additional funds to pay this
obligation.
36
While NASD Rule 2460 specifically prohibits broker-dealers such as Keating from
accepting any payment or other consideration, directly or indirectly, from an
issuer of a security, or any affiliate or promoter thereof, for publishing a
quotation, acting as market maker in a security, or submitting an application in
connection therewith, Keating represents that it maintains full compliance with
this rule at all times, and the services to be provided are "bona fide services"
as permitted by Rule 2460. Compensation paid to Keating is not intended to be,
and should not be construed to be, for the provision of any market-making
services.
Property
We currently utilize office space at 650 So. Cherry Street, Suite 420, Denver,
CO 80246. This location currently serves as our principal place of business. We
have no rent obligations as this space is leased by Strategic Asset Management,
LLC, a company of which Spencer I. Browne, our Secretary and a director, is a
member and which pays all rent on the space. The landlord for the property is a
non-affiliated third party. We anticipate relocating our principal place of
business to Whitco's offices at 6777 Camp Bowie Boulevard, Suite 233, Fort
Worth, TX 76116 on consummation of the transaction with Whitco. See "Business of
Whitco - Properties."
Limitation on Liability and Indemnification Matters
As authorized by the Delaware General Corporation Law, our certificate of
incorporation provides that none of our directors shall be personally liable to
us or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
o for any breach of the director's duty of loyalty to us or our
stockholders; o for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law;
o pursuant to Section 174 of the Delaware General Corporation Law; or
o for any transaction from which the director derived an improper
personal benefit.
This provision limits our rights and the rights of our stockholders to recover
monetary damages against a director for breach of the fiduciary duty of care
except in the situations described above. This provision does not limit our
rights or the rights of any stockholder to seek injunctive relief or rescission
if a director breaches his or her duty of care. These provisions will not alter
the liability of directors under federal securities laws.
Our certificate of incorporation further provides for the indemnification of any
and all persons who serve as our director, officer, employee or agent to the
fullest extent permitted under the Delaware General Corporation Law.
In connection with the acquisition of Whitco, we anticipate obtaining from them
an assignment of the policy of insurance under which the directors and officers
following the acquisition will be insured, subject to the limits of the policy,
against certain losses arising from claims made against our directors and
officers by reason of any acts or omissions covered under this policy in their
capacities as directors or officers, including liabilities under the Securities
Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors, officers and controlling persons under the above
provisions, or otherwise, we have been advised that in the opinion of the SEC,
indemnification is against public policy as expressed in the Securities Act, and
is unenforceable.
37
Conflict of Interest Policy
To minimize potential conflicts of interest relating to acquisition
transactions, we have established a policy which provides that:
o we will not combine with any target business or enter into any acquisition
transaction in which any of our officers, directors or non-public
stockholders, or their respective affiliates, serves as an officer,
director or partner or owns or holds an ownership interest in any other
party to the combination or transaction; and
o our management may not negotiate or otherwise consent to the purchase of
their respective securities in Wentworth as a condition of, or in
connection with, our entering into such a combination or transaction.
By virtue of having signed the registration statement of which this
reconfirmation prospectus is a part, our directors and officers confirm they are
aware of this policy and know of no circumstances under which, through their own
initiative, this policy has been violated.
Our officers and directors currently have and/or may in the future have real or
potential conflicts of interest with us in connection with their allocation of
business time and with respect to corporate opportunities.
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to
the beneficial ownership of common stock, as of the date of this reconfirmation
prospectus and as adjusted to reflect the issuance of the maximum 3,800,000
shares and options to purchase shares of common stock, which such number
includes 200,000 shares to be issued to Keating Investment, LLC as a fee, in
connection with our acquisition of Whitco by:
o each person known by us to beneficially own 5% or more of common stock, o each
of our executive officers and directors, and o all of our executive officers and
directors as a group.
Beneficial ownership is determined in accordance with the rules of the
SEC and includes voting and investment power. Under SEC rules, a person is
deemed to be the beneficial owner of securities which may be acquired by such
person upon the exercise of options and warrants or the conversion of
convertible securities within 60 days from the date on which beneficial
ownership is to be determined. Each beneficial owner's percentage ownership is
determined by dividing the number of shares beneficially owned by that person by
the base number of outstanding shares, increased to reflect the
beneficially-owned shares underlying options, warrants or other convertible
securities included in that person's holdings, but not those underlying shares
held by any other person.
For the purposes of the table, the base number of outstanding shares
are: currently, 200,000; upon completion of the acquisition, 3,391,367.
Except as otherwise indicated in the notes to the following table,
o we believe that all shares are beneficially owned, and investment and
voting power is held, by the persons named as owners; and
o the address for each beneficial owner listed in the table, except where
otherwise noted, is c/o Whitco Company, L.L.P., 6777 Camp Bowie Boulevard,
Suite 233, Fort Worth, TX 76116.
38
Currently After the Acquisition
------------------------------
-------------------------------
Amount and Percentage Amount and Percentage
Nature of of Shares Nature of of Shares
Beneficial Beneficially Beneficial Beneficially
Name of Stockholder Ownership Owned Ownership Owned
-------------------- --------- ----- --------- -----
Kevin R. Keating (1)....................... 90,000 45.0 90,000 2.65%
Spencer I. Browne (2)...................... 60,000 30.0 60,000 1.77%
Steven P. Salinas.......................... 41,600 20.8 41,600 1.23%
Dennis H. Depenbusch (3)................... 0 0 1,610,974(4) 47.50%
Henry Glover(5)............................ 0 0 96,951(6) 2.78%
Mary Titus (7)............................. 0 0 0 0
Tracy B. Taylor (8)........................ 0 0 0 0
Keating Investments, LLC (9)............... 0 0 200,000 5.90%
Larry Doskocil Trust (10).................. 0 0 685,004 20.20%
Celestine Depenbusch (11).................. 0 0 472,048 13.92%
All executive officers and directors as a
group (two people currently and four
persons after the acquisition)......... 150,000 75.0 1,707,925 50.36%
-----------
(1) Mr. Keating currently is President, Chief Financial Officer and a
director of Wentworth. It is anticipated that Mr. Keating will continue
to serve as a director of Wentworth following the completion of our
acquisition of Whitco. The address for this stockholder is 650 So.
Cherry Street, Suite 420, Denver, CO 80246.
(2) Mr. Browne currently is Secretary and a director of Wentworth. We do
not believe Mr. Browne will continue to serve as an executive officer
or director following the completion of our acquisition of Whitco. The
address for this stockholder is 650 So. Cherry Street, Suite 420,
Denver, CO 80246.
(3) Mr. Depenbusch is currently managing partner of Whitco. We believe Mr.
Depenbusch will serve as chief executive officer and chairman of the
board of directors of Wentworth following completion of our acquisition
of Whitco.
(4) 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.
(5) It is anticipated that Mr. Glover will become President and a director
of Wentworth following the acquisition.
(6) Represents 96,951 shares of common stock issuable upon exercise of
currently vested options granted to Mr. Glover.
(7) We believe Ms. Titus will serve as a director of Wentworth following
completion of our acquisition of Whitco.
(8) We believe Mr. Taylor will serve as a director of Wentworth following
completion of our acquisition of Whitco.
(9) Keating Investments, LLC is to receive 200,000 shares of common stock
as a finder's fee upon consummation of the transaction with Whitco. The
address for this stockholder is 383 Inverness Drive South, Suite 100,
Englewood CO 80112.
(10) Larry Doskocil is the sole trustee of the Larry Doskocil Trust.
(11) Celestine Depenbusch is the mother of Dennis H. Depenbusch.
Mr. Depenbusch exercises no voting or other control over Celestine
Depenbusch's partnership
interests.
39
Control of Wentworth will be held by our management. Currently, our
management controls 75% of the total voting power of Wentworth and, upon
completion of the proposed acquisition of Whitco, our then anticipated
management will control 50.36% of the total voting power, with additional stock
and option grants to be given to members of our Board of Directors. See
"Executive Compensation." Given their large voting control, our current
management is in the position to elect all of the members of our board of
directors and thereby control the policies of Wentworth. Our anticipated
management following the acquisition transaction, together with their
affiliates, if they choose to act in concert, will control a significant portion
of the voting power of Wentworth and have the ability, through exercise of their
options, to acquire additional shares of common stock. As such, our management
has and will have substantial influence over Wentworth, which influence may not
necessarily be consistent with the interests of our other stockholders.
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 200,000
shares of common stock outstanding as of the date of this reconfirmation
prospectus. We currently have outstanding no 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
reconfirmation prospectus. We have no present plans to issue any such shares.
In the event our board of directors does authorize, designate and issue
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:
40
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. We will amend this
prospectus to disclose additional states, if any, in which our securities will
be eligible for resale in the secondary trading market.
Transfer Agent
Corporate Stock Transfer of Denver, Colorado is our transfer agent and
we anticipate they will continue to serve in such capacity upon consummation of
the transaction with Whitco and the release of the shares from escrow.
PLAN OF DISTRIBUTION
We offered the 50,000 shares on a self underwritten, all-or-none basis.
We relied on the safe harbor exception of Rule 3a4-1 of the Securities Exchange
Act to not be deemed a broker with respect to the offering. Neither Wentworth
nor any officer or director of Wentworth received commissions in connection with
our IPO.
A market may never develop for our common stock
We arbitrarily set the offering price of the shares. We will pay all
expenses incident to the registration of the common stock upon release of the
IPO proceeds from escrow and will pay the expenses relating to this
reconfirmation prospectus. We will not pay, among other things, the expenses,
commissions and discounts of brokers, dealers or agents of the purchasers of the
shares.
CERTAIN MARKET INFORMATION
There has been, and there currently is, no public trading market for the
common stock. A public trading market may never develop or, if one develops, may
not be sustained. Accordingly, a resale of your securities may be difficult. No
assurance can be given that a market will develop or that any security holder
will be able to liquidate their investment without considerable delay, if at
all. While we intend to apply for quotation of our securities on the
Over-the-Counter Bulletin Board, we cannot guarantee that our application will
be approved and that our securities are listed and quoted for sale. The trading
market price of our securities may decline below the price at which the
securities were sold to you. If a market for our securities should develop,
their market prices may be highly volatile. In addition, an active public market
for our securities may not develop or be sustained. If selling security holders
sell all or substantial amounts of their securities in the public market, the
market price of our securities could be adversely affected.
The offering price was arbitrarily determined and may not reflect our
value. The price of the common stock does not bear any relationship to our book
value, assets, current or prospective earnings or any other recognized criterion
of value.
41
Federal regulations governing "penny stocks" could have a detrimental
effect on holders of our securities. Our securities, when available for trading,
will be subject to the SEC rules that impose special sales practice requirements
upon broker-dealers that sell such securities to parties other than established
customers or accredited investors. For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Consequently, the rule may affect the ability of purchasers of our
securities to buy or sell in any market that may develop. In addition, the SEC
has adopted a number of rules to regulate "penny stocks." Because our securities
may constitute "penny stock" within the meaning of these rules, the rules would
apply to us and our securities. The rules may further affect the ability of
owners of our securities to sell their securities in any market that may develop
for them.
SHARES ELIGIBLE FOR FUTURE SALE
We will have issued and outstanding 3,391,368 shares of common stock
following the completion of the proposed acquisition transaction with Whitco and
options to purchase 808,632 shares of common stock. Of such securities, the
50,000 shares sold in the IPO will be freely tradable without restriction or
further registration under the Securities Act. All of the remaining common stock
outstanding following the acquisition transaction is restricted securities, as
that term is defined under Rule 144. All of the shares to be issued to the
Whitco partners and option holders upon completion of the acquisition
transaction will be deemed restricted stock for purposes of Rule 144 and,
accordingly, may not be sold absent their registration under the Securities Act
or pursuant to Rule 144 following their being held for the applicable holding
periods set forth in Rule 144.
In general, under Rule 144 as currently in effect, a person or group of
persons whose shares are aggregated, who has beneficially owned restricted
shares for at least one year, including the holding period of any prior owner
except an affiliate of ours, would be entitled to sell, within any three month
period, a number of shares that does not exceed the greater of:
o 1% of the number of then outstanding shares of our common stock, or
o the average weekly trading volume of our common stock during the four
calendar weeks preceding the sale;
provided, that public information about us as required by Rule 144 is available
and the seller complies with manner of sale provisions and notice requirements.
The volume limitations described above, but not the one-year holding
period, also apply to sales of our non-restricted securities by our affiliates.
A person who is not an affiliate, has not been an affiliate within three months
before the sale and has beneficially owned the restricted securities for at
least two years, is entitled to sell the restricted shares under Rule 144
without regard to any of the limitations described above.
Before our IPO, there was no public market for our securities. We
cannot predict the effect, if any, that sales of, or the availability for sale
of, our securities will have on the market price of our common stock prevailing
from time to time. Nevertheless, the possibility that substantial amounts of
common stock might enter the public market through Rule 144 sales or otherwise,
could adversely affect the prevailing market price of our securities and could
impair our ability to raise capital in the future through the sale of
securities.
There may be an adverse effect on the market price of our securities
because common stock is available for future sale. No prediction can be made as
to the effect, if any, future sales, or the availability of shares of Common
Stock for future sale, by us or by our directors and executive officers will
have on the market price of our securities prevailing from time to time. Sales
of substantial amounts of our securities, including shares issued upon the
exercise of options or warrants, or the perception that such sales could occur,
could adversely affect prevailing market prices for the our securities.
42
ADDITIONAL 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
subject to the reconfirmation offering made under this prospectus. 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.
LEGAL PROCEEDINGS
We are not a party to nor are we aware of any existing, pending or
threatened lawsuits or other legal actions.
EXPERTS
Our audited financial statements as of December 31, 2002 and for the year
then ended included in this prospectus, and the registration statement of which
this prospectus is a part, have been included herein in reliance on the report
of Hein + Associates LLP, independent accountants, given on the authority of
such firm as an expert in accounting and auditing.
Our audited balance sheet as of December 31, 2001 not included in this
prospectus and the related statements of operations, stockholders equity and
cash flow for the period from inception (March 7, 2001) to December 31, 2001
included in this prospectus, and the registration statement of which this
prospectus is a part, have been included herein in reliance on the report of
Goldstein Golub Kessler LLP, independent accountants, given on the authority of
such firm as an expert in accounting and auditing.
Whitco's audited financial statements as of September 30, 2002 and for the
nine months then ended included in this prospectus, and the registration
statement of which this prospectus is a part, have been included herein in
reliance on the report of Hein + Associates LLP, independent accountants, given
on the authority of such firm as an expert in accounting and auditing.
Whitco's audited statements of income, partners' equity and cash flows for
the year ended December 31, 2001 included in this prospectus, and the
registration statement of which this prospectus is a part, have been included
herein in reliance on the report of Grant Thornton LLP, independent accountants,
given on the authority of such firm as an expert in accounting and auditing.
43
INDEX TO FINANCIAL STATEMENTS
WENTWORTH III, INC. PAGE
------------------- ----
Independent Auditors' Reports...................................................................................F-2
Balance Sheets - March 31, 2003 (unaudited) and December 31, 2002...............................................F-4
Statement of Operations - For the Three Months Ended March 31, 2003 (unaudited), for the Year
Ended December 31, 2002, For the Period from March 7, 2001 (Date of Inception) to
December 31, 2001 and For the Period from March 7, 2001 (Date of Inception) to March 31,
2003 (unaudited)............................................................................................F-5
Statements of Changes in Stockholders' Equity - For the Period from March 7, 2001 (Date of
Inception) to December 31, 2002, for the Year Ended December 31, 2002 and for the Three
Months Ended March 31, 2003 (unaudited).....................................................................F-6
Statements of Cash Flows - For the Three Months Ended March 31, 2003 (unaudited), for the Year
Ended December 31, 2002, For the Period from March 7, 2001 (Date of Inception) to
December 31, 2001 and For the Period from March 7, 2001 (Date of Inception) to March 31,
2003 (unaudited)............................................................................................F-7
Notes to Financial Statements...................................................................................F-8
WHITCO COMPANY
Independent Auditor's Report...................................................................................F-13
Report of Independent Certified Public Accountants.............................................................F-14
Balance Sheets - March 31, 2003 (unaudited) and September 30, 2002.............................................F-15
Statements of Income - For the Six Months Ended March 31, 2003 and 2002 (unaudited),
Three Months Ended December 31, 2002 (unaudited), Nine Months Ended September 30, 2002
and Year Ended December 31, 2001...........................................................................F-16
Statements of Partners' Equity - For the Year Ended December 31, 2001, For the Nine Months
Ended September 30, 2002, and For the Six Months Ended March 31, 2003 (unaudited)..........................F-17
Statements of Cash Flows - For the Six Months Ended March 31, 2003 and 2002 (unaudited),
Nine Months Ended September 30, 2002 and Year Ended December 31, 2001......................................F-18
Notes to Financial Statements..................................................................................F-19
PRO FORMA FINANCIAL INFORMATION
Introduction....................................................................................................F-28
Pro Forma Combining, Condensed Balance Sheet (unaudited)........................................................F-29
Pro Forma Combining, Condensed Statements of Operations (unaudited).............................................F-30
Pro Forma Notes to Combining, Condensed Financial Information...................................................F-32
F-1
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Wentworth III, Inc.
Denver, Colorado
We have audited the accompanying balance sheet of Wentworth III, Inc. (a
development stage company) (the "Company") as of December 31, 2002, and the
related statements of operations, stockholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wentworth III, Inc. as of
December 31, 2002 and the results of its operations and its cash flows for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered operating losses since its
inception and has a working capital deficiency that raise substantial doubt
about its ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
HEIN + ASSOCIATES LLP
Denver, Colorado
February 5, 2003
F-2
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Wentworth III, Inc.
We have audited the accompanying balance sheet of Wentworth III, Inc. (a
development stage company) as of December 31, 2001 (not presented herein), and
the related statements of operations, stockholders' equity and cash flows for
the period from March 7, 2001 (date of inception) to December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wentworth III, Inc. as of
December 31, 2001 and the results of its operations, and its cash flows for the
period from March 7, 2001 (date of inception) to December 31, 2001 in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in the notes to the
financial statements, the Company has suffered operating losses since its
inception and has a working capital deficiency that raise substantial doubt
about its ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
May 24, 2002
F-3
WENTWORTH III, INC.
(A Development Stage Company)
BALANCE SHEETS
MARCH 31, 2003 DECEMBER 31,
2002
----------------- ----------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 681 $ 2,125
------------- -------------
Total current assets 681 2,125
CASH-RESTRICTED 45,000 45,000
DEFERRED TAX ASSET, net of valuation allowance of $7,371 - -
------------- -------------
TOTAL ASSETS $ 45,681 $ 47,125
============= =============
------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,964 $ -
Accrued expenses 36,000 38,000
Due to officer 1,035 1,035
------------- -------------
Total current liabilities 42,999 39,035
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value; authorized 10,000,000 shares, none issued
- - Common stock - $.01 par value; authorized 40,000,000 shares, 200,000
shares
issued and outstanding 2,000 2,000
Additional paid-in capital 25,937 25,937
Deficit accumulated during the development stage (25,255) (19,847)
------------- -------------
Total stockholders' equity 2,682 8,090
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 45,681 $ 47,125
============= =============
See accompanying notes to these financial statements.
F-4
WENTWORTH III, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
FOR THE FOR THE FOR THE
THREE MONTHS THREE MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31,
MARCH 31, 2003 MARCH 31, 2002 2002
---------------- --------------- ---------------
(unaudited)
INTEREST INCOME $ -- $ 18 $ 25
OPERATING EXPENSES:
Professional fees 2,978 1,374 17,753
Other general and administrative expense 2,430 -- 797
--------------- --------------- ---------------
Total operating expenses 5,408 1,374 18,550
--------------- --------------- ---------------
NET LOSS (5,408) (1,356) (18,525)
--------------- --------------- ---------------
NET LOSS PER COMMON SHARE $ (0.03) $ (.01) $ (0.09)
=============== =============== ===============
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING 200,000 150,000 200,000
=============== =============== ===============
FOR THE
PERIOD FROM FOR THE
MARCH 7, 2001 PERIOD FROM
(DATE OF MARCH 7, 2001
INCEPTION) TO (DATE OF
DECEMBER 31, INCEPTION) TO
2001 MARCH 31, 2003
--------------- ----------------
(unaudited)
INTEREST INCOME $ 20 $ 45
OPERATING EXPENSES:
Professional fees -- 20,731
Other general and administrative expense 1,342 4,569
--------------- ----------------
Total operating expenses 1,342 25,300
--------------- ----------------
NET LOSS (1,322) (25,255)
--------------- ----------------
NET LOSS PER COMMON SHARE $ (0.01)
===============
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING 150,000
===============
See accompanying notes to these financial statements.
F-5
WENTWORTH III, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM MARCH 7, 2001 (DATE OF INCEPTION) TO DECEMBER 31, 2002,
FOR THE YEAR ENDED DECEMBER 31, 2002 AND FOR THE
THREE MONTHS ENDED MARCH 31, 2003 (unaudited)
COMMON STOCK
--------------- ----------------
SHARES AMOUNT
--------------- ----------------
Issuance of common stock for cash at $.05 per share 150,000 $ 1,500
Net loss for the period from March 7, 2001 (date of
inception) to December 31, 2001 - -
------------ ------------
BALANCE, December 31, 2001 150,000 1,500
Net proceeds from sale of common stock for cash
received in public offering at $1.00 per share 50,000 500
Net loss for the year ended December 31, 2002 - -
------------ ------------
BALANCE, December 31, 2002 200,000 2,000
Net loss for the three months ended March 31, 2003
(unaudited) - -
------------ ------------
BALANCE, March 31, 2003 (unaudited) 200,000 $ 2,000
============ ============
ADDITIONAL DEFICIT DURING
PAID-IN THE DEVELOPMENT STOCKHOLDERS'
CAPITAL STAGE EQUITY
----------------- ----------------------------------
Issuance of common stock for cash at $.05 per share $ 6,000 $ - $ 7,500
Net loss for the period from March 7, 2001 (date of
inception) to December 31, 2001 - (1,322) (1,322)
--------------- ------------- ---------------
BALANCE, December 31, 2001 6,000 (1,322) 6,178
Net proceeds from sale of common stock for cash
received in public offering at $1.00 per share 19,937 - 20,437
Net loss for the year ended December 31, 2002 - (18,525) (18,525)
--------------- ------------- ---------------
BALANCE, December 31, 2002 25,937 (19,847) 8,090
Net loss for the three months ended March 31, 2003
(unaudited) - (5,408) (5,408)
--------------- ------------- ---------------
BALANCE, March 31, 2003 (unaudited) $ 25,937 $ (25,255) $ 2,682
=============== ============== ===============
See accompanying notes to these financial statements.
F-6
WENTWORTH III, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
FOR THE
FOR THE THREE FOR THE THREE YEAR ENDED
MONTHS ENDED MONTHS ENDED DECEMBER 31,
MARCH 31, 2003 MARCH 31, 2002 2002
--------------- --------------- -------------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
ACTIVITIES:
Net loss $ (5,408) $ (1,356) $ (18,525)
Adjustments to reconcile net loss to net
cash used in operating activities:
Changes in operating assets and
liabilities:
Increase in restricted cash - - (45,000)
Increase in accounts payable 5,964 - -
Increase (decrease) in accrued expenses (2,000) 256 7,595
Increase in due to officer - - 1,035
------------- --------------- -------------
Net cash used in operating activities (1,444) (1,100) (54,895)
CASH USED IN INVESTING ACTIVITY
Deferred offering costs - - -
------------- --------------- -------------
Net cash provided by
investing activities - - -
------------- --------------- -------------
Cash provided by financing activity,
proceeds from the issuance of
common stock - - 50,000
------------- --------------- -------------
INCREASE (DECREASE) IN CASH (1,444) (1,100) (4,895)
CASH, at beginning of period 2,125 7,020 7,020
------------- --------------- -------------
CASH, at end of period $ 681 $ 5,920 $ 2,125
============= =============== =============
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING
ACTIVITY:
Expense accrued for offering costs $ - $ 23,369 $ 18,419
============= =============== =============
FOR THE
PERIOD FROM FOR THE
MARCH 7, 2001 PERIOD FROM
(DATE OF MARCH 7, 2001
INCEPTION) TO (DATE OF
DECEMBER 31, INCEPTION) TO
2001 MARCH 31, 2003
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
ACTIVITIES:
Net loss $ (1,322) $ (25,255)
Adjustments to reconcile net loss to net
cash used in operating activities:
Changes in operating assets and
liabilities:
Increase in restricted cash - (45,000)
Increase in accounts payable - 5,964
Increase (decrease) in accrued expenses 842 6,437
Increase in due to officer - 1,035
------------- --------------
Net cash used in operating activities (480) (56,819)
CASH USED IN INVESTING ACTIVITY
Deferred offering costs - -
------------- --------------
Net cash provided by
investing activities - -
------------- --------------
Cash provided by financing activity,
proceeds from the issuance of
common stock 7,500 57,500
------------- --------------
INCREASE (DECREASE) IN CASH 7,020 681
CASH, at beginning of period - -
------------- --------------
CASH, at end of period $ 7,020 $ 681
============= ==============
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING
ACTIVITY:
Expense accrued for offering costs $ 11,144 $ 29,563
============= ==============
See accompanying notes to these financial statements.
F-7
WENTWORTH III, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 2002 is unaudited.)
1. ORGANIZATION AND OPERATIONS AND GOING CONCERN:
Wentworth III, Inc. (the "Company") was incorporated in the State of
Delaware on March 7, 2001 for the purpose of raising capital that is
intended to be used in connection with a merger, acquisition or other
business combination with an operating business. On October 9, 2001, the
Company issued 150,000 shares of $.01 par value common stock for $.05
per share, a total of $7,500. During 2001, the Company filed a
registration statement on Form SB-2, under SEC Rule 419, which was
declared effective by the Securities and Exchange Commission on August
6, 2002. Under this registration statement on November 4, 2002, the
Company sold 50,000 shares of $.01 par value common stock in a public
offering for $1.00 per share for gross proceeds of $50,000. The Company
incurred $29,563 in expenses of the offering.
The Company is currently in the development stage. All activities of the
Company to date relate to its formation, its public offering and
subsequent public filings and to finding an acquisition target with
which to consummate a business combination.
The proceeds of the initial public offering as well as the related
securities purchased have been placed in an escrow account where they
will remain until the consummation of any business combination as
required by the Securities and Exchange Commission Rule 419. The Company
may withdraw only 10% of the funds as working capital in order to seek
acquisition opportunities or for other corporate purposes. The remaining
$45,000 has been shown as cash in escrow in the accompanying balance
sheet.
At the time the Company seeks stockholder approval of any potential
merger, acquisition or other business combination, the Company will
offer each of the initial investors the right, for a specific period of
time, to reconfirm their investments and remain investors or,
alternatively, to require the return of their funds, including interest
if any, from the escrow account. Any investor not making a decision
within the specific time period will automatically have their funds
returned plus interest. The Company cannot consummate any business
combination unless at least 2/3 of investors in the IPO reconfirm their
investments.
As a result of limited resources, the Company will, in all likelihood,
have the ability to effect only a single business combination.
Accordingly, the prospects for the Company's success will be entirely
dependent upon the future performance of a single business. Furthermore,
there is no assurance that the Company will be able to successfully
execute a business combination. If the Company does not complete a
merger, acquisition or other business combination meeting specified
criteria within 18 months of the date of the initial public offering,
the Company will return the $45,000 of funds in the escrow account, plus
interest, if any.
F-8
WENTWORTH III, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 2002 is unaudited.)
The financial instruments, which potentially subject the Company to
concentration of credit risk, consist of cash. The Company maintains
cash in an account with a financial institution in an amount which, at
times, may be in excess of the FDIC insured limit. The Company has not
experienced any losses on such account and does not believe it is
exposed to any significant risk with respect to cash.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
the use of estimates by management. Actual results could differ from
these estimates.
The Company does not believe that any recently issued but
not-yet-effective accounting standards will have a material effect on
the Company's financial position, results of operations or cash flows.
2. GOING CONCERN:
The Company has no revenue to date and has incurred operating losses of
$25,255 since inception. Since inception, the Company has been dependent
upon the receipt of capital investment or other financing to fund its
continuing activities. The Company has not identified any business
combination and therefore, cannot ascertain with any degree of certainty
the capital requirements for any particular transaction. In addition,
the Company is dependent upon certain related parties to provide
continued funding and capital resources. The accompanying financial
statements have been presented on the basis of the continuation of the
Company as a going concern and do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Deferred Offering Costs - Deferred offering costs, which were being
incurred in anticipation of the Company filing a Rule 419 registration
statement, were deferred until the sale of common shares. On November 4,
2002, when the offering closed, these costs were charged to additional
paid in capital.
Income Taxes - The Company accounts for income taxes in accordance with
the Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," which requires the recognition of deferred tax
liabilities and assets at currently enacted tax rates for the expected
future tax consequences of events that have been included in the
financial statements or tax returns. A valuation allowance is recognized
to reduce the net deferred tax asset to an amount that is more likely
than not to be realized. The tax provision shown on the accompanying
statement of operations is zero since the deferred tax asset generated
from the net operating loss is offset in its entirety by a valuation
allowance. State minimum taxes are expensed as incurred.
F-9
WENTWORTH III, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 2002 is unaudited.)
Cash and Cash Equivalents, and Restricted Cash - Cash and cash
equivalents, if any, include all highly liquid debt instruments with an
original maturity of three months or less at the date of purchase.
Restricted cash represents the proceeds of the Rule 419 common stock
offering, which are limited as to their use pursuant to this Rule (see
Note 1).
Fair Value of Financial Instruments - Cash and current liabilities are
recorded in the financial statements at cost, which approximates fair
market value because of the short-term maturity of those instruments.
Net Income (Loss) Per Share - Basic earnings per share (EPS) is
calculated by dividing the income or loss available to common
shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock. The Company currently has no
dilutive securities and as such, basic and diluted earnings per share
are the same for all periods presented.
Comprehensive Income (Loss) - Comprehensive income is defined as all
changes in stockholders' equity (deficit), exclusive of transactions
with owners, such as capital investments. Comprehensive income includes
net income or loss, changes in certain assets and liabilities that are
reported directly in equity such as translation adjustments on
investments in foreign subsidiaries and unrealized gains (losses) on
available-for-sale securities. During the year ended December 31, 2002
and for the period from March 7, 2001 (inception) to December 31, 2001,
the Company's comprehensive loss was the same as its net loss.
Interim Financial Information - The accompanying interim financial
information as of March 31, 2003 and for the three months ended March
31, 2003 and 2002 has been taken from the Company's books and records
without audit. However, in the opinion of management, such information
includes all adjustments (consisting only of normal recurring
accruals) necessary to fairly present the financial position as of
March 31, 2003 and results of operations of the Company for the three
months ended March 31, 2003 and 2002 and the period from inception to
March 31, 2003.
4. STOCKHOLDERS' EQUITY:
The Company's Certificate of Incorporation authorizes the issuance of
50,000,000 shares of stock. They are divided into 10,000,000 shares of
preferred stock and 40,000,000 shares of common stock. At December 31,
2002, none of the preferred stock has been issued. However, such
preferred shares may later be issued in such series with whatever
preferences as may be determined by the Board of Directors.
During the year ended December 31, 2002, the Company completed the
sale of 50,000 shares of common stock at $1.00 in an initial public
offering (IPO). Offering cost associated with IPO totaled $29,563.
Prior to the IPO, the company sold 150,000 shares of common stock for
$7,500 in a private placement. At December 31, 2002, 200,000 shares of
the common stock have been issued. In addition, the Company will, in
all likelihood, issue a substantial number of additional shares in
connection with a merger, acquisition or business combination. To the
extent that additional shares of common stock are issued, dilution to
the interest of the Company's current stockholders will occur.
F-10
WENTWORTH III, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 2002 is unaudited.)
5. INCOME TAXES:
The Company has a net operating loss carryforward of approximately
$20,000 available to offset taxable income through the years 2021 and
2022.
The Company recorded a deferred income tax asset for the tax effect of
net operating loss carryforwards and temporary differences, aggregating
$7,371, against which the Company has recorded a full valuation
allowance in recognition of the uncertainty regarding the ultimate
amount of income tax benefits to be derived. The change in the valuation
allowance for the period ended December 31, 2001 to December 31, 2002 is
$6,922.
December 31, 2002
-------------------
Start up costs $ 123
Net operating loss carryforwards 7,248
Valuation allowance (7,371)
-------------
$ -
=============
F-11
WENTWORTH III, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(The period subsequent to December 31, 2002 is unaudited.)
The difference between income taxes computed at the statutory federal
rate of 34% and the provision for income taxes relates to the following:
Percent of
Pretax Amount
-----------------
Provision at federal statutory rate 34%
Increase in valuation allowance (34)
---
0%
6. MERGER:
On February 6, 2003, the Wentworth board of directors unanimously
approved an agreement to merge with Whitco Company, LLP ("Whitco"), a
privately held Texas-based manufacturer and marketer of steel outdoor
lighting pole structures. Assuming all of the escrow holders elect to
reconfirm their investment in us, we believe that the fair value of
Whitco represents at least 80% of the offering proceeds of $50,000
realized from our offering. Whitco's management and board will assume
significant majority control of the Company through a merger structure
whereby Whitco will become a wholly-owned subsidiary of Wentworth.
Wentworth will thereafter change its name to Catalyst Lighting Group.
Keating Investments, LLC ("KI"), a registered broker-dealer, will
receive an investment banking fee payable by Natural Golf Corporation in
connection with the proposed transaction. Timothy J. Keating, the son of
Kevin R. Keating, the Company's President, is the Managing Member of,
and holds approximately an 87% interest in, KI. There is currently no
signed agreement between KI and the Company. However, KI has been
engaged by and is representing Whitco Company LLP as its investment
banker. Given the limited cash resources of Wentworth III, management of
the Company anticipates that any fees to be paid to KI will be paid
either through the issuance of equity of Wentworth III or through the
cash resources of Whitco Company LLP or a combination of both.
F-12
INDEPENDENT AUDITOR'S REPORT
To the Partners
Whitco Company, LLP
Hutchinson, Kansas
We have audited the accompanying balance sheet of Whitco Company, LLP as of
September 30, 2002, and the related statements of income, partners' equity, and
cash flows for the nine months then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Whitco Company, LLP as of
September 30, 2002 and the results of its operations and its cash flows for the
nine months then ended, in conformity with accounting principles generally
accepted in the United States of America.
HEIN + ASSOCIATES LLP
Denver, Colorado
December 20, 2002
F-13
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Partners
WHITCO COMPANY, LLP
We have audited the accompanying statements of 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-14
WHITCO COMPANY, LLP
BALANCE SHEETS
MARCH 31, 2003 SEPTEMBER 30,
2002
----------------- -----------------
(unaudited)
ASSETS
CURRENT ASSETS:
Trade receivables, less allowance for doubtful accounts of $58,192
(unaudited) and $54,442 $ 2,014,824 $ 2,280,109
Inventories 1,313,644 852,033
Prepaid expenses and other 60,276 20,029
-------------- --------------
Total current assets 3,388,744 3,152,171
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $66,026 (unaudited)
and $51,991 133,558 133,875
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
-------------- --------------
$ 6,509,457 $ 6,275,218
============== ==============
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Revolving note payable $ 1,408,979 $ 1,087,025
Current maturities of long-term debt 288,065 257,646
Accounts payable 1,615,485 1,250,935
Other accrued liabilities 481,000 703,543
-------------- --------------
Total current liabilities 3,793,529 3,299,149
-------------- --------------
LONG-TERM DEBT, less current maturities:
Related party 70,000 446,000
Other 1,344,106 1,392,571
-------------- --------------
Total long-term debt 1,414,106 1,838,571
PARTNERS' EQUITY 1,301,822 1,137,498
-------------- --------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 6,509,457 $ 6,275,218
============== ==============
See accompanying notes to these financial statements.
F-15
WHITCO COMPANY, LLP
STATEMENTS OF INCOME
THREE NINE
SIX MONTHS SIX MONTHS MONTHS MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, DEVEMBER 31, SEPTEMBER 30, DECEMBER 31,
2003 2002 2002 2002 2001
-------------- --------------- -------------- -------------- --------------
(unaudited) (unaudited) (unaudited)
SALES $ 6,574,408 $ 6,093,056 $ 3,282,406 $ 10,243,036 $ 11,784,438
COST OF SALES 4,394,957 4,147,409 2,172,735 7,169,790 7,887,188
------------ ------------ ------------ ------------ ------------
GROSS MARGIN ON SALES 2,179,451 1,945,647 1,109,671 3,073,246 3,897,250
OTHER OPERATING COSTS AND EXPENSES:
General, selling and administrative 2,242,950 1,647,891 1,104,146 2,700,835 3,053,662
expenses
Amortization of goodwill - 59,874 - - 229,797
------------ ------------ ------------ ------------ ------------
2,242,950 1,707,765 1,104,146 2,700,835 3,283,459
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (63,499) 237,882 5,525 372,411 613,791
OTHER EXPENSE:
Interest expense 147,177 131,438 71,519 224,677 292,138
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (210,676) $ 106,444 $ (65,994) $ 147,734 $ 321,653
============ ============ ============ ============ ============
PRO FORMA INCOME TAXES AND NET INCOME
(LOSS): (unaudited)
INCOME (LOSS) BEFORE PRO FORMA INCOME TAXES $ (210,676) $ 106,444 $ (65,994) $ 147,734 $ 321,653
PRO FORMA INCOME TAXES 75,484 (41,801) 22,838 (58,062) (123,122)
------------ ------------ ------------ ------------ ------------
PRO FORMA NET INCOME (LOSS) $ (135,192) $ 64,643 $ (43,156) $ 89,672 $ 198,531
============ ============ ============ ============ ============
See accompanying notes to these financial statements.
F-16
WHITCO COMPANY, LLP
STATEMENTS OF PARTNERS' EQUITY
For the Year Ended December 31, 2001,
For the Nine Months Ended September 30, 2002, and
For the Six Months Ended March 31, 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) - - (210,676) (210,676)
---------- --------------- --------------- ---------------
BALANCE, March 31, 2003 (unaudited) 893 $ 1,030,000 $ 271,822 $ 1,301,822
========== =============== =============== ===============
See accompanying notes to these financial statements.
F-17
WHITCO COMPANY, LLP
STATEMENTS OF CASH FLOWS
SIX MONTHS SIX MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2003 2002
---------------- ----------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (210,676) $ 106,444
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 16,052 70,237
Allowance for bad debt - -
Change in operating assets and liabilities:
Trade receivables 265,285 (339,418)
Inventories (461,611) 382,430
Prepaid expenses and other (38,230) (3,889)
Accounts payable 364,550 (205,666)
Other accrued liabilities (197,560) 93,295
-------------- --------------
Net cash provided by (used in) operating activities (262,190) 103,433
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (13,718) (18,626)
-------------- --------------
Net cash used in investing activities (13,718) (18,626)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in revolving note payable 321,954 (49,281)
Proceeds from issuance of long-term debt - -
Payments on short-term and long-term notes payable (46,046) (35,523)
Sale of partnership interest - -
Partners' distributions - -
Redemption of partners' interest - -
-------------- --------------
Net cash provided by (used in) financing activities 275,908 (84,804)
-------------- --------------
NET CHANGE IN CASH - 3
CASH, at beginning of period - (3)
-------------- --------------
CASH, at end of period $ - $ -
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 147,177 $ 131,438
============== ==============
SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Conversion of long-term debt to partnership interest $ 375,000 $ -
============== ==============
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
2002 2001
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 147,734 $ 321,653
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 31,182 249,415
Allowance for bad debt 32,406 9,048
Change in operating assets and liabilities:
Trade receivables (813,817) (2,989)
Inventories 34,068 (190,183)
Prepaid expenses and other 21,938 (14,849)
Accounts payable 720,595 (219,257)
Other accrued liabilities 223,004 174,631
------------- -------------
Net cash provided by (used in) operating activities 397,110 327,469
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (74,307) (26,934)
------------- -------------
Net cash used in investing activities (74,307) (26,934)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in revolving note payable (99,276) 213,565
Proceeds from issuance of long-term debt 546,000 -
Payments on short-term and long-term notes payable (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 (322,803) (308,679)
------------- -------------
NET CHANGE IN CASH - (8,144)
CASH, at beginning of period - 8,144
------------- -------------
CASH, at end of period $ - $ -
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 240,692 $ 290,089
============= =============
SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Conversion of long-term debt to partnership interest $ - $ -
============= =============
See accompanying notes to these financial statements.
F-18
WHITCO COMPANY, LLP
NOTES TO FINANCIAL
STATEMENTS (Information subsequent to
September 30, 2002 is unaudited.)
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 six months ended March 31, 2003 and 2002,
for the nine months ended September 30, 2002 and for the year ended
December 31, 2001 was $14,035, $10,363, $23,910 and $19,618,
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.
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 six months
ended March 31, 2003 and the nine months ended September 30, 2002,
unaudited pro forma net income (loss) would have been approximately
$(266,000) and $(82,000), respectively.
F-19
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 March 31, 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-20
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 March 31, 2003 and for the periods ended March 31,
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 March 31, 2003 and results of operations of the Company for the
periods ended March 31, 2002 and 2001 and December 31, 2002.
Impact of Recently Issued Accounting Pronouncements - In July 2002, the
FASB issued Statements of Financial Accounting Standards No. 146,
Accounting for Costs Associated with Exit or Disposal Activities (SFAS
146). SFAS 146 requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than at the
date of a commitment to an exit or disposal plan. Examples of costs
covered by SFAS 146 include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS 146
is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. The adoption of SFAS 146 is not expected to
have a material effect on the Company's financial position or results of
its operations.
In August 2002, the FASB issued Statements of Financial Accounting
Standards No. 147, Acquisitions of Certain Financial Institutions (SFAS
147). SFAS 147 requires financial institutions to follow the guidance in
SFAS 141 and SFAS 142 for business combinations and goodwill and
intangible assets, as opposed to the previously applied accounting
literature. This statement also amends SFAS 144 to include in its scope
long-term customer relationship intangible assets of financial
institutions. The provisions of SFAS 147 do not apply to the Company.
In December 2002, the FASB issued Statements of Financial Accounting
Standards No.148, Accounting for Stock-Based Compensation - Transition
and Disclosure - An Amendment of FASB Statement 123 (SFAS 123). For
entities that change their accounting for stock-based compensation from
the intrinsic method to the fair value method under SFAS 123, the fair
value method is to be applied prospectively to those awards granted
after the beginning of the period of adoption (the prospective method).
The amendment permits two additional transition methods for adoption of
the fair value method. In addition to the prospective method, the entity
can choose to either (i) restate all periods presented (retroactive
restatement method) or (ii) recognize compensation cost from the
beginning of the fiscal year of adoption as if the fair value method had
been used to account for awards (modified prospective method). For
fiscal years beginning December 15, 2003, the prospective method will no
longer be allowed. The Company currently accounts for its stock-based
compensation using the intrinsic value method as proscribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to
F-21
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
Employees and plans on continuing using this method to account for stock
options, therefore, it does not intend to adopt the transition
requirements as specified in SFAS 148. The Company has adopted the new
SFAS 148 disclosure requirements of SFAS 148 in these financial
statements.
In May 2003, the FASB issued Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity ("FAS 150"). FAS 150 requires that three classes of freestanding
financial statements that embody obligations for entities be classified
as liabilities. Generally, FAS 150 is effective for financial
instruments entered into or modified after May 31, 2003 and is otherwise
effective at the beginning of the first interim period beginning after
June 15, 2003. The Company does not believe the adoption of FAS 150 will
have a material impact on its financial position or results of
operations.
INVENTORIES:
Inventories are comprised of the following:
March 31, September 30, 2002
2003
------------------- -------------------
(unaudited)
Raw materials $ 1,164,925 $ 580,060
Work in process 103,679 271,973
Finished goods 45,040 -
----------------- ---------------
$ 1,313,644 $ 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 March 31, 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
$1,408,979 and $1,087,025 at March 31, 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 March 31, 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.
F-22
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
LONG-TERM DEBT:
Long-term debt at year end consists of the following:
March 31, 2003 September 30,
2002
--------------- ----------------
(unaudited)
Noninterest-bearing note payable to an individual, discounted at 6.3%
(unamortized discount of $57,016 and $75,509 at March 31, 2003 and
September 30, 2002), payable in annual installments of $217,851 (a). $ 596,794 $ 578,043
Noninterest-bearing note payable to an individual, discounted at 6.22%
(unamortized discount of $16,834 and $20,207 at March 31, 2003 and
September 30, 2002, respectively), payable in monthly installments of $7,375 (a) 185,377 222,175
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, principal due July 31, 2005,
interest payable monthly at a fixed rate of 15% (b)(c) - 50,000
Subordinated note payable to a partner, due April 30, 2004, 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, due April 30, 2007, 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
------------- ---------------
1,702,171 2,096,218
Less current maturities (288,065) (257,646)
------------- ---------------
$ 1,414,106 $ 1,838,572
============= ===============
F-23
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 six months ended March 31, 2003 and 2002, the nine months
ended September 30, 2002 and the year ended December 31, 2001, the
Company had $24,000, $33,375, $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 $749,884 as of September
30, 2002 and March 31, 2003, respectively.
F-24
WHITCO COMPANY, LLP
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to September 30, 2002 is unaudited.)
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 March 31, 2003.
Following is a summary of partnership option activity:
Weighted
Employee Average
Options Range of Exercise
Outstanding Exercise Prices Price
----------------- --------------------------- --------------
Low High
----------------- ------------ ------------ --------------
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, March 31, 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-25
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:
March 31, 2003 September 30, December 31,
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 six months ended March 31, 2003 and 2002, the nine months
ended September 30, 2002 and for the year ended December 31, 2001, the
Company paid $30,000, $12,000, $24,000 and $24,000, respectively, for
accounting and administrative services to an entity related through
common ownership.
During the six months ended March 31, 2003 and 2002, the nine months
ended September 30, 2002 and the year ended December 31, 2001, the
Company had sales of $235,823, $274,676, $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 $43,058 and $24,894 at March 31, 2003 and 2002, respectively.
See Note 4 for other related party transactions.
F-26
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 six months ended March 31, 2003 and 2002, the nine
months ended September 30, 2002 and the year ended December 31, 2001,
was $20,811, $31,925, $39,364 and $55,525, respectively.
SUBSEQUENT EVENTS:
Subsequent to December 31, 2002, the Company entered into an
acquisition agreement with Wentworth III, Inc. Among other items, the
acquisition is contingent upon shareholder/partner approval of the Company and
Wentworth III. For financial statement purposes, the Company will be considered
the acquiring company. For legal purposes, however, Wentworth III will remain
the surviving entity, therefore, the combined entity will retain Wentworth III,
Inc.'s capital structure and all the partnerships' units will be converted into
common stock of Wentworth III, Inc.
F-27
PRO FORMA FINANCIAL INFORMATION
INTRODUCTION
In February 2003, Whitco Company (WC) entered into a reverse acquisition
agreement with Wentworth III, Inc. (Wentworth), a registered Blank Check
company. 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 Wentworth common stock. Wentworth's assets and liabilities
were nominal at the date of the agreement. The transaction is to be 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 March 31, 2003 with the balance sheet of Wentworth
as of March 31, 2003.
The accompanying unaudited pro forma combining, condensed statements of
operations combine the operations of WC and Wentworth for the six months ended
March 31, 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-28
WHITCO COMPANY, LLP
WENTWORTH III, INC.
PRO FORMA
COMBINING, CONDENSED BALANCE SHEET
(unaudited)
WHITCO WENTWORTH
COMPANY, LLP III, INC.
MARCH 31, MARCH 31,
2003 2003
-------------- -------------
MERGER PRO FORMA
COMBINED
-------------- ------------- ------------- ----------------
ASSETS
CURRENT ASSETS:
Cash $ - $ 45,681 $ - $ 45,681
Trade receivables 2,014,824 - 2,014,824
Inventory 1,313,644 - - 1,313,644
Prepaid expenses and other 60,276 - - 60,276
------------- ------------ ----------- -------------
Total current assets 3,388,744 45,681 - 3,434,425
PROPERTY AND EQUIPMENT, net 133,558 - - 133,558
OTHER ASSETS
Goodwill 2,971,362 - - 2,971,362
Other 15,793 - - 15,793
------------- ------------ ----------- -------------
TOTAL ASSETS $ 6,509,457 $ 45,681 $ - $ 6,555,138
============= ============ =========== =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving note payable $ 1,408,979 - $ - $ 1,408,979
Current portion of notes payable 260,065 - - 260,065
Other current liabilities 2,124,485 42,999 (b) 165,000 2,332,484
------------- ------------ ----------- -------------
Total current liabilities 3,793,529 42,999 165,000 4,001,528
LONG-TERM OBLIGATIONS, net of current portion 1,414,106 - - 1,414,106
------------- ------------ ----------- -------------
TOTAL LIABILITIES 5,207,635 42,999 165,000 5,415,634
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 1,386,768
(c) 974,831
Retained earnings (accumulated deficit) 271,822 (25,255) (b) (388,000) (281,178)
(b) (165,000)
(c) 25,255
------------- ----------- ----------- -------------
Total stockholders' equity 1,301,822 2,682 (165,000) 1,139,504
------------- ------------ ----------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,509,457 $ 45,681 $ - $ 6,555,138
============= ============ =========== =============
F-29
WHITCO COMPANY, LLP
WENTWORTH III, INC.
PRO FORMA
COMBINING, CONDENSED STATEMENT OF OPERATIONS
(unaudited)
WHITCO WENTWORTH
COMPANY, LLP III, INC.
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
MARCH 31, 2003 MARCH 31, PRO FORMA PRO FORMA
2003 ADJUSTMENTS COMBINED
--------------- -------------- --------------- ----------------
NET SALES $ 6,574,408 $ - $ - $ 6,574,408
COST OF SALES 4,394,957 - - (4,394,957)
------------- ------------- ------------ -------------
GROSS PROFIT 2,179,451 - - 2,179,451
OPERATING EXPENSE 2,242,950 21,083 - 2,264,033
------------- ------------- ------------ -------------
LOSS FROM OPERATIONS (63,499) (21,083) - (84,582)
OTHER INCOME (EXPENSE) (147,177) 1 (a) 14,100
(b) (388,000)
(b) (165,000) (686,076)
------------- ------------- ------------ -------------
NET INCOME (LOSS) BEFORE PRO FORMA INCOME
TAXES (210,676) (21,082) (538,900) (770,658)
PRO FORMA INCOME TAXES 75,484 7,821 (87,905) (4,600)
------------- ------------- ------------ -------------
NET LOSS $ (135,192) $ (13,261) $ (626,805) $ (775,258)
============= ============= ============ =============
BASIC AND DILUTED NET LOSS PER SHARE $ (.07) $ - $ (.23)
============ ============ =============
COMMON STOCK OUTSTANDING 200,000 (d) 3,191,368 3,391,368
============= ============ =============
F-30
WHITCO COMPANY, LLP
WENTWORTH III, INC.
PRO FORMA
COMBINING, CONDENSED STATEMENT OF OPERATIONS
(unaudited)
WHITCO WHITCO
COMPANY, LLP WHITCO COMPANY, LLP
FOR THE NINE COMPANY, LLP FOR THE
MONTHS ENDED FOR THE THREE TWELVE MONTHS
SEPTEMBER MONTHS ENDED ENDED
30, 2002 DECEMBER 31, DECEMBER 31,
2002 2002
-------------- --------------- ---------------
NET SALES $ 10,243,036 $ 3,282,406 $ 13,525,442
COST OF SALES 7,169,790 2,172,735 9,342,525
------------ ------------- -------------
GROSS PROFIT 3,073,246 1,109,671 4,182,917
OPERATING EXPENSE 2,700,835 1,104,146 3,804,981
------------ ------------- -------------
LOSS FROM OPERATIONS 372,411 5,525 377,936
OTHER INCOME (EXPENSE) (224,677) (71,519) (296,196)
------------ ------------- -------------
NET INCOME (LOSS) BEFORE PRO FORMA INCOME
TAXES 147,734 (65,994) 81,740
------------ ------------- -------------
PRO FORMA INCOME TAXES (58,062) 22,838 (35,224)
------------ ------------- -------------
NET INCOME (LOSS) $ 89,672 $ (43,156) $ 46,516
============ ============= =============
BASIC AND DILUTED NET LOSS PER SHARE
COMMON STOCK OUTSTANDING
WENTWORTH
III, INC.
FOR THE YEAR
ENDED
DECEMBER 31, PRO FORMA PRO FORMA
2002 ADJUSTMENTS COMBINED
- --------------- --------------- ---------------
NET SALES $ - $ - $ 13,525,442
COST OF SALES - - 9,342,525
------------- ------------ ---------------
GROSS PROFIT - - 4,182,917
OPERATING EXPENSE 18,550 - 3,823,531
------------- ------------ ---------------
LOSS FROM OPERATIONS (18,550) - 359,386
OTHER INCOME (EXPENSE) 25 (a) 14,100 (835,071)
(b) (388,000)
(b) (165,000)
------------- ------------ ---------------
NET INCOME (LOSS) BEFORE PRO FORMA INCOME
TAXES (18,525) (538,900) (475,685)
PRO FORMA INCOME TAXES 6,873 19,121 (9,230)
------------- ------------ ---------------
NET INCOME (LOSS) $ (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-31
WHITCO COMPANY, LLP
WENTWORTH III, 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 six months ended March 31, 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 estimates
it will incur $553,000 of merger expenses. $165,000 will be paid in
cash 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 Wentworth III.
(d) To reflect the issuance of 3,191,368 shares in conjunction with the
acquisition.
F-32
We have not authorized any dealer, salesperson or other person to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus
does not constitute an offer to sell or buy any securities in any jurisdiction
where it is unlawful to do so. The information contained in this prospectus is
current only as of its date.
Until May 20, 2003 (90 days from the date of this prospectus), all dealers
effecting transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to a
dealer's obligation to deliver a prospectus when acting as an underwriter and
with respect to an unsold allotment or subscription.
50,000 Shares
Wentworth III, Inc.
______ __, 2003
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......................................... $ 25,000.00*
Accounting fees.................................... 10,000.00*
Printing costs..................................... 500.00*
Transfer agent fee................................. 250.00
Miscellaneous fees and expenses.................... 250.00*
-------------
Total expenses................................ $ 36,000.00
=============
----------
* Estimated
Item 26. Recent Sales of Unregistered Securities.
On October 9, 2001, Kevin R. Keating, our President, Chief Financial
Officer and a director, purchased 90,000 shares of common stock for $.05 per
share, or an aggregate of $4,500. On the same day, Spencer I. Browne, our
Secretary and a director, purchased 60,000 shares of common stock for $.05 per
share, or an aggregate of $3,000. These securities were sold pursuant to an
exemption from the securities laws pursuant to Section 4(2) of the Securities
Act of 1933.
Whitco Company, L.L.P.:
On May 1, 2002, the partnership interests of two of the three
then-existing partners of Whitco Company, L.L.P. were purchased for a total of
$1.2 Million. A total of 436 2/3 partnership units were sold for $655,000, at a
price per partnership unit of $1,500, and $545,000 in subordinated debt. There
were no underwriters or commissions paid with respect to this or any other
transaction set forth in this Item 26. These securities were sold pursuant to an
exemption from the securities laws pursuant to Section 4(2) of the Securities
Act of 1933, as the offering of partnership interests was to a limited number of
offerees made without general solicitation in a non-public offering. Further,
these securities were exempted from the registration requirements pursuant to
the safe harbor of Regulation D, as Whitco also had a reasonable belief all
investors were "accredited", based on the subscription agreements executed by
each investor. Additionally, each investor made a representation they were
accredited investors under Rule 501(a) and that they had the necessary
sophistication to be able to fend for themselves. The following tables set out
the purchase price and amount of partnership units and subordinated debt issued
with respect to this transaction:
PARTNERSHIP UNITS ISSUED:
Name Total Purchase Amount Partner Units Purchased
---- --------------------- -----------------------
Celestine C. Depenbusch $200,000 133 1/3
Larry D. Doskocil, Trustee of the
Larry D. Doskocil Living Trust
UAD February 20, 1986, as amended $250,000 166 2/3
John and Jacqueline Middelkamp, JTWROS $50,000 33 1/3
June M. Ochsner, Trustee of the June M.
Ochsner Revocable Trust dated
October 21, 1997 $50,000 33 1/3
Dennis H. Depenbusch $1,500 1
Dennis H. Depenbusch and Darcilyn
H. Depenbusch as co-trustees, or their
successors in trust, of the Dennis H.
Depenbusch Revocable Trust, dated
December 21, 1998 $103,500 69
Subordinated Debt Issued:
Name Total Expiration Date Interest Rate
---- ----- --------------- -------------
Larry D. Doskocil, Trustee of the Larry
D. Doskocil Living Trust UAD February
20, 1986, as amended $250,000 May 1, 2004 15%
$20,000 May 1, 2007 15%
James K. "Kip" Pritchard $150,000 May 1, 2007 15%
Dennis H. Depenbusch and Darcilyn
H. Depenbusch as co-trustees, or
their successors in trust, of the Dennis H.
Depenbusch Revocable Trust,
Dated December 21, 1998 $75,000 May 1, 2007 15%
Jacqueline N. Middelkamp $50,000 May 1, 2007 15%
On January 31, 2003, all subordinated debt holders were
offered the opportunity to convert such debt into partnership units. These
securities were sold pursuant to an exemption from the securities laws pursuant
to Section 4(2) of the Securities Act of 1933, as the offering of partnership
interests was to a limited number of offerees with an ongoing relationship with
Whitco and its management, made without general solicitation in a non-public
offering. The following table sets out those note holders who chose to convert
from debt to equity:
Name Total Partnership Units Issued
---- ----- ------------------------
Celestine C. Depenbusch $50,000 7.56
Larry D. Doskocil, Trustee of
the Larry D. Doskocil Living
Trust UAD February 20,
1986, as amended $250,000 37.78
Dennis H. Depenbusch
and Darcilyn H. Depenbusch
as co-trustees, or their
successors in trust, of the
Dennis H. Depenbusch
Revocable Trust,
dated December 21, 1998 $75,000 11.48
Additionally, Whitco has granted a total of 241.3485 qualified options
to five employees of Whitco, giving each employee options to purchase
partnership units of Whitco. There were no underwriters, discounts or
commissions paid in connection with the granting of such options. Whitco did not
receive any compensation for the granting of such options as all options were
issued in consideration for the option holder's employment with Whitco. However,
all options are exercisable for cash consideration as set forth below. None of
the options have been exercised. 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 Number of
Issue Granted Pursuant Price Per
Name Date Period to Option Unit
Kip Pritchard 6/30/00 0 104.5 $ 1,000
Mark Wendt (a) 6/30/00 5 years 104.5 $ 1,000
Tom Lach 9/21/00 5 years 22.333 $ 2,913
Kevin Medlin 10/1/01 5 years 22.333 $ 2,916
Henry Glover 1/1/02 5 years 57.1825 $ 2,916
Henry Glover 12/31/02 5 years 17.5 $ 2,890
Tom Lach 12/31/02 5 years 7 $ 2,890
Kevin Medlin 12/31/02 5 years 7 $ 2,890
Ben Mosqueda 12/31/02 5 years 3.5 $ 2,890
(a) Mr. Wendt is no longer an employee of Whitco. He did not purchase
any partnership units while employed and all options, vested and unvested,
terminated upon his cessation as an employee of Whitco.
Item 27. Exhibits and Financial Statement Schedules.
EXHIBITS
Item 27.
** 3.1 Certificate of Incorporation
** 3.2 By-Laws
** 4.1 Specimen Certificate of Common Stock
** 4.2 Escrow Agreement
** 4.3 Form of Subscription Agreement
** 5.1 Opinion of Willkie Farr & Gallagher
** 10.1 Securities Exchange Agreement, dated as of February 12, 2003
by Wentworth III, Inc. and Whitco Company, L.L.P.
** 10.2 Manufacturing Letter Agreement with Whip Industries, Inc.
** 10.3 Form of Sales Agent Representative Agreement
* 23.1 Consent of Hein & Associates LLP
* 23.2 Consent of Hein & Associates LLP
* 23.3 Consent of Grant Thornton LLP
* 23.4 Consent of Goldstein Golub Kessler LLP
--------------------------
* Filed with this amendment
** Previously filed.
II-3
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
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-4
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies it has reasonable grounds to believe that it meets all of
the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of Denver,
State of Colorado on June 11, 2003.
Wentworth III, Inc.
By: /s/ Kevin R. Keating
--------------------------------------
Kevin R. Keating, President,
Principal Executive Officer
and Controller
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
Signature Title Date
/s/ Kevin R. Keating President, Chief Financial Officer, Principal Executive June 11, 2003
-------------------- Officer and Controller, Director
Kevin R. Keating
/s/ Spencer I. Browne Secretary, Director June 11, 2003
--------------------
Spencer I. Browne
EXHIBIT INDEX
Exhibit
Number Description
** 3.1 Certificate of Incorporation
** 3.2 By-Laws
** 4.1 Specimen Certificate of Common Stock
** 4.2 Escrow Agreement
** 4.3 Form of Subscription Agreement
** 5.1 Opinion of Willkie Farr & Gallagher
** 10.1 Securities Exchange Agreement, dated as of February 12,
2003 by Wentworth III, Inc. and Whitco Company, L.L.P.
** 10.2 Manufacturing Letter Agreement with Whip Industries, Inc.
** 10.3 Form of Sales Agent Representative Agreement
* 23.1 Consent of Hein & Associates LLP
* 23.2 Consent of Hein & Associates LLP
* 23.3 Consent of Grant Thornton LLP
* 23.4 Consent of Goldstein Golub Kessler LLP
--------------------------
* Filed with this amendment
** Previously filed