U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-SB

GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL

BUSINESS ISSUERS

UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number ______

CATALYST LIGHTING GROUP, INC.
(Name of Small Business Issuer in its charter)

Delaware
 
36-4611496
(State or other jurisdiction of
 
(I.R.S. employer
incorporation or formation)
 
identification number)
     
936A Beachland Boulevard, Suite 13
   
Vero Beach, Florida
 
32963
(Address of principal executive offices)
 
(Zip Code)

Issuer's telephone number: (772) 231-7544

Securities to be registered under Section 12(b) of the Act:

 
 
Name of each Exchange on which
Title of each class to be so registered
 
each class is to be registered
     
None
 
N/A

Securities to be registered under Section 12(g) of the Exchange Act:

Title of each class    

Common Stock, $0.0001



EXPLANATORY NOTE

We are filing this General Form for Registration of Securities on Form 10-SB to register our common stock, pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Once this registration statement is deemed effective, we will be subject to the requirements of Regulation 13A under the Exchange Act, which will require us to file annual reports on Form 10-KSB, quarterly reports on Form 10-QSB, and current reports on Form 8-K, and we will be required to comply with all other obligations of the Exchange Act applicable to issuers filing registration statements pursuant to Section 12(g) of the Exchange Act.

Our common stock was previously registered under Section 12(g) of the Exchange Act under Commission File Number 000-50385. However, on December 27, 2005, we filed Form 15 with the U.S. Securities and Exchange Commission (the “SEC”) to terminate the registration of our common stock under Section 12(g) of the Exchange Act and to suspend our duty to file reports under the Exchange Act. The Form 15 was filed on the basis that we had less than 300 holders of record of our common stock as of December 27, 2005.

Unless otherwise noted, references in this registration statement to “Catalyst” the “Company,” “we,” “our” or “us” means Catalyst Lighting Group, Inc.  Our principal place of business is located at  936A Beachland Boulevard, Suite 13, Vero Beach, FL 32963. Our telephone number is (772) 231-7544 .

FORWARD LOOKING STATEMENTS

There are statements in this registration statement that are not historical facts. These “forward-looking statements” can be identified by use of terminology such as “believe,” “hope,” “may,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy” and similar expressions. You should be aware that these forward-looking statements are subject to risks and uncertainties that are beyond our control.  For a discussion of these risks, you should read this entire Registration Statement carefully, especially the risks discussed under “Risk Factors.” Although management believes that the assumptions underlying the forward looking statements included in this Registration Statement are reasonable, they do not guarantee our future performance, and actual results could differ from those contemplated by these forward looking statements. The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements.  In the light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking statements contained in this Registration Statement will in fact transpire. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We do not undertake any obligation to update or revise any forward-looking statements.

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TABLE OF CONTENTS

Item Number and Caption
 
Page
       
PART I
     
       
Item 1.
Description of Business
  1
       
Item 2.
Management's Discussion and Analysis or Plan of Operations
 
5
       
 
Risk Factors
 
9
       
Item 3.
Description of Property
 
15
       
Item 4.
Security Ownership of Certain Beneficial Owners and Management
 
15
       
Item 5.
Directors, Executive Officers, Promoters and Control Persons
 
17
       
Item 6.
Executive Compensation
 
21
       
Item 7.
Certain Relationships and Related Transactions
 
23
       
Item 8.
Description of Securities
 
24
       
PART II
     
       
Item 1.
Market for Common Equity and Related Stockholder Matters
 
29
       
Item 2.
Legal Proceedings
 
31
       
Item 3.
Changes in and Disagreements with Accountants
 
31
       
Item 4.
Recent Sales of Unregistered Securities
 
31
       
Item 5.
Indemnification of Directors and Officers
 
32
       
PART F/S
     
       
 
Financial Statements
 
F-1 to F-20
       
PART III
     
       
Item 1.
Index to Exhibits
 
34
       
Signature
   
35

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PART I65

Item 1. Description of Business

(a)   Business History and Background

We were formed as a “blank check” Delaware corporation under the name Wentworth III, Inc. on March 7, 2001 to effect a merger, exchange of capital stock, asset acquisition or other similar business combination with an operating business which we believe had significant growth potential. As of February 12, 2003, we entered into a Securities Exchange Agreement with Whitco Company, L.L.P., a Texas limited liability partnership which manufactured, marketed and distributed outdoor lighting poles. On August 27, 2003, we acquired Whitco Company, LP (successor in interest as a result of the conversion of Whitco Company, L.L.P. to a limited partnership) through an exchange of all of Whitco's partnership units, and options to purchase partnership units, for 2,991,368 shares of Catalyst common stock, and options to purchase 808,632 shares of Catalyst common stock. Following our acquisition of Whitco, we changed our name to Catalyst Lighting Group, Inc., and Whitco became our wholly-owned subsidiary.

Whitco was a nationwide manufacturer, marketer and distributor of steel and aluminum outdoor lighting poles. Founded in 1969, Whitco sold poles directly to original equipment manufacturers (OEM's) and indirectly to other third parties through its own contracted sales representatives. We sought to have Whitco become the preferred manufacturer, marketer and distributor of steel and aluminum lighting pole structures and accessories.

We operated our Whitco business solely through our wholly-owned Whitco subsidiary. As such, substantially all of our assets and liabilities resided in our Whitco subsidiary. We continued to incur operating losses from our Whitco business and had insufficient working capital to fund our Whitco business operations. During late 2005, we pursued the alternative of selling or merging with another company to provide manufacturing economies of scale and the potential of additional liquidity to fund operations.
 
However, due to continuing operating losses, on March 15, 2006, Whitco voluntarily filed for protection under Chapter 11 of the U.S. bankruptcy laws. On April 25, 2006, the bankruptcy court approved a sale of Whitco’s assets (other than cash and accounts receivable) used in its area lighting pole business. The assets were sold free and clear of any liens and encumbrances to a third party purchaser pursuant to Section 363 of the U.S Bankruptcy Code. The purchaser issued a common stock purchase warrant (“Purchase Warrant”) to acquire shares of the purchaser’s common stock as consideration for the assets purchased.
 
On May 16, 2006, Whitco filed a motion to convert its bankruptcy case to a Chapter 7 liquidation proceeding. This motion was granted by the bankruptcy court on July 13, 2006. In connection with the liquidation, the Purchase Warrant and Whitco’s cash and accounts receivable were assigned and distributed to Whitco’s secured creditor, Laurus Master Fund, Ltd. (“Laurus”). As part of the Chapter 7 bankruptcy proceedings, no assets were available for distribution to unsecured creditors and, accordingly, these unsatisfied obligations were relieved as part of the liquidation of Whitco in accordance with the provisions of Chapter 7 of U.S. bankruptcy laws.
 
Since Whitco’s liquidation in bankruptcy, the Company has had nominal assets, nominal business operations and its business strategy has been to investigate and, if such investigation warrants, acquire a target company or business seeking the perceived advantages of being a publicly held corporation. In furtherance of this business strategy, on July 25, 2006, Catalyst voluntarily filed for protection under Chapter 11 of the U.S. bankruptcy laws. Catalyst subsequently determined to withdraw from bankruptcy court protection and, on motion made by the U.S. trustee, the bankruptcy court ordered the case dismissed on January 9, 2007.

1


(b)   Reorganization
 
Since the dismissal of Catalyst’s bankruptcy case, the Company completed a reorganization in September 2007 and settled all of its outstanding liabilities with creditors outside the jurisdiction of the bankruptcy courts (the “Reorganization”). As part of this Reorganization, on August 22, 2007, the Company entered into a securities purchase agreement (“Securities Purchase Agreement”) with KIG Investors I, LLC (“KIG Investors”), a Delaware limited liability company, pursuant to which KIG Investors purchased 1,572,770 shares of convertible preferred stock for a purchase price of $157,277, or $0.10 per share (“Preferred Stock Purchase”). A copy of the Securities Purchase Agreement is attached hereto as Exhibit 10.3.
 
On August 23, 2007, in accordance with the terms of the Securities Purchase Agreement, the existing officers and two of the Company’s directors resigned, and Kevin R. Keating, the sole remaining director, was appointed Chief Executive Officer, Chief Financial Officer, President, Secretary and Treasurer of the Company.
 
Kevin R. Keating is the father of Timothy J. Keating, the principal member of Keating Investments, LLC. Keating Investments, LLC is the managing member of KIG Investors. Timothy J. Keating is the manager of KIG Investors.
 
The Preferred Stock Purchase was completed on September 12, 2007. The preferred shares were automatically convertible into the Company’s common stock at such time as the Company completed a 1-for-10 reverse stock split (“Reverse Split”). The Reverse Split was completed on September 25, 2007, and KIG Investors was issued 2,562,015 shares of common stock, on a post-reverse split basis, upon cancellation of the preferred stock. The proceeds of the Preferred Stock Purchase were used to pay outstanding liabilities of the Company.
 
KIG Investors was granted certain demand and piggyback registration rights for the shares of common stock issued to them upon conversion, pursuant to the terms and condition of a certain registration rights agreement (“KIG Registration Rights Agreement”). A copy of the KIG Registration Rights Agreement is attached hereto as Exhibit 10.4.
 
In connection with the closing of the Preferred Stock Purchase, the Company entered into agreements with a number of creditors for a cash settlement of amounts owed to them by the Company. Pursuant to these cash settlements, the Company paid an aggregate of $30,277 in complete satisfaction of $191,092 in accrued liabilities, resulting in income from the discharge of indebtedness of $160,815.
 
In connection with the closing of the Preferred Stock Purchase, the Company also entered into settlement and release agreements (collectively, the “Settlement Agreements”) with Feldman Weinstein & Smith, LLP (“FWS”), former legal counsel to the Company, and with Halliburton Investor Relations (“HIR”), the Company’s former investor relation firm, for the issuance of common stock in complete settlement of amounts owed to them for services rendered. Pursuant to these Settlement Agreements, the Company issued an aggregate of 71,086 shares of common stock, on a post-split basis, valued at $7,109 or approximately $0.10 per share, in satisfaction of accrued liabilities totaling $73,260, resulting in income from discharge of indebtedness of $66,151 being recorded. A copy of the Settlement Agreements with FWS and HIR are attached hereto as Exhibits 10.5 and 10.6, respectively. FWS and HIR were granted certain piggyback registration rights for the shares of common stock received by them in the settlement.
 
In connection with the closing of the Preferred Stock Purchase, the Company also entered into settlement and release agreement with Laurus (“Laurus Settlement Agreement”) for the issuance of common stock in complete settlement of amounts owed to it for certain loans and accrued interest. Pursuant to the Laurus Settlement Agreement, the Company issued 1,083,172 shares of common stock, on a post-split basis, valued at $108,317 or approximately $0.10 per share, in satisfaction of principal under notes of $820,024 and accrued interest of $121,095, resulting in income from discharge of indebtedness of $832,802 being recorded. A copy of the Laurus Settlement Agreement is attached hereto as Exhibit 10.8.

2


Laurus was granted certain demand and piggyback registration rights for the shares of common stock issued to them under the settlement, pursuant to the terms and condition of a certain registration rights agreement (“Laurus Registration Rights Agreement”). A copy of the Laurus Registration Rights Agreement is attached hereto as Exhibit 10.9.
 
Further, as part of the foregoing cash and equity settlements, any creditor holding warrants to purchase shares of the Company’s common stock agreed to the cancellation of such warrants. Accordingly, warrants to purchase 82,367 shares of common stock, on a post-reverse split basis, were cancelled.
 
  (c) Current Business of Issuer

Since completion of its Reorganization, the Company’s business strategy has been to investigate and, if such investigation warrants, acquire a target operating company or business seeking the perceived advantages of being a publicly held corporation. The Company’s principal business objective for the next 12 months and beyond such time will be to achieve long-term growth potential through a combination with an operating business rather than immediate, short-term earnings. The Company will not restrict its potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire any type of business.

To date, the Company has made no efforts to identify a possible business combination. As a result, the Company has not conducted negotiations or entered into a letter of intent concerning any target business. The Company intends to commence search for an operating business suitable for a business combination after this Registration Statement becomes effective and the Company is a reporting company under the Exchange Act.

Under SEC Rule 12b-2 under the Securities Act of 1933, as amended (the “Securities Act”), the Company qualifies as a “shell company,” because it has no or nominal assets (other than cash) and no or nominal operations. Management does not intend to undertake any efforts to cause a market to develop in our securities, either debt or equity, until we have successfully concluded a business combination. The Company intends to comply with the periodic reporting requirements of the Exchange Act for so long as it is subject to those requirements.

The analysis of new business opportunities will be undertaken by or under the supervision of Kevin R. Keating, the sole officer and director of the Company. As of this date, the Company has not entered into any definitive agreement with any party, nor have there been any specific discussions with any potential business combination candidate regarding business opportunities for the Company. The Company has unrestricted flexibility in seeking, analyzing and participating in potential business opportunities. In its efforts to analyze potential acquisition targets, the Company will consider the following kinds of factors:

(i)   Potential for growth, indicated by new technology, anticipated market expansion or new products;

(ii)   Competitive position as compared to other firms of similar size and experience within the industry segment as well as within the industry as a whole;

(iii)   Strength and diversity of management, either in place or scheduled for recruitment;

(iv)   Capital requirements and anticipated availability of required funds, to be provided by the Company or from operations, through the sale of additional securities, through joint ventures or similar arrangements or from other sources;

(v)   The cost of participation by the Company as compared to the perceived tangible and intangible values and potentials;

3


(vi)   The extent to which the business opportunity can be advanced;

(vii)   The accessibility of required management expertise, personnel, raw materials, services, professional assistance and other required items; and

(viii)   Other relevant factors.

In applying the foregoing criteria, no one of which will be controlling, management will attempt to analyze all factors and circumstances and make a determination based upon reasonable investigative measures and available data. Potentially available business opportunities may occur in many different industries, and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex. Due to the Company's limited capital available for investigation, the Company may not discover or adequately evaluate adverse facts about the opportunity to be acquired.

(d)   Form of Potential Business Combination

The manner in which the Company participates in an opportunity will depend upon the nature of the opportunity, the respective needs and desires of the Company and the promoters of the opportunity, and the relative negotiating strength of the Company and such promoters.

It is likely that the Company will acquire its participation in a business opportunity through the issuance of common stock or other securities of the Company. Although the terms of any such transaction cannot be predicted, it should be noted that in certain circumstances the criteria for determining whether or not an acquisition is a so-called "tax free" reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code") depends upon whether the owners of the acquired business own 80% or more of the voting stock of the surviving entity. If a transaction were structured to take advantage of these provisions rather than other "tax free" provisions provided under the Code, all prior stockholders of the Company would in such circumstances retain 20% or less of the total issued and outstanding shares of the surviving entity. Under other circumstances, depending upon the relative negotiating strength of the parties, prior stockholders of the Company may retain substantially less than 20% of the total issued and outstanding shares of the surviving entity. This could result in substantial additional dilution to the equity of those who were stockholders of the Company prior to a business combination with an operating entity.

The present stockholders of the Company will likely not have control of a majority of the voting securities of the Company following a reorganization transaction. As part of such a transaction, the Company's sole director may resign and one or more new directors may be appointed without any vote by stockholders.

In the case of a business combination, the transaction may be accomplished upon the sole determination of management without any vote or approval by stockholders. In the case of a statutory merger or consolidation directly involving the Company, it will likely be necessary to call a stockholders' meeting and obtain the approval of the holders of a majority of the outstanding securities. The necessity to obtain such stockholder approval may result in delay and additional expense in the consummation of any proposed transaction and will also give rise to certain appraisal rights to dissenting stockholders. Most likely, management will seek to structure any such transaction so as not to require stockholder approval.

It is anticipated that the investigation of specific business opportunities and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial cost for accountants, attorneys and others. If a decision is made not to participate in a specific business opportunity, the costs theretofore incurred in the related investigation might not be recoverable. Furthermore, even if an agreement is reached for the participation in a specific business opportunity, the failure to consummate that transaction may result in the loss to the Company of the related costs incurred.

4


We presently have no employees. Our sole officer and director is engaged in outside business activities and anticipates that he will devote to our business very limited time until the acquisition of a successful business opportunity has been identified. We expect no significant changes in the number of our employees other than such changes, if any, incident to a business combination.

(e) Reports to Security Holders

(i)   The Company is not required to deliver an annual report to security holders and at this time does not anticipate the distribution of such a report.

(ii)   The Company will file reports with the SEC. The Company will be a reporting company and will comply with the requirements of the Exchange Act.

(iii)   The public may read and copy any materials the Company files with the SEC in the SEC's Public Reference Section, Room 1580, 100 F Street N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Section by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, which can be found at http://www.sec.gov.

Item 2. Management’s Discussion and Analysis or Plan of Operations

(a) Reorganization  
 
The Company completed its reorganization in September 2007 and settled all of its outstanding liabilities with creditors outside the jurisdiction of the bankruptcy courts. As part of the Reorganization, on August 22, 2007, the Company entered into a stock purchase agreement with KIG Investors pursuant to which KIG Investors purchased 1,572,770 shares of convertible preferred stock for a purchase price of $157,277, or $0.10 per share.
 
The Preferred Stock Purchase was completed on September 12, 2007. The preferred shares were automatically convertible into the Company’s common stock at such time as the Company completed a 1-for-10 reverse stock split (“Reverse Split”). The Reverse Split was completed on September 25, 2007, and KIG Investors was issued 2,562,015 shares of common stock, on a post-reverse split basis, upon cancellation of the preferred stock. The proceeds of the Preferred Stock Purchase were used to pay outstanding liabilities of the Company.
 
As part of the Reorganization, the Company entered into agreements with a number of creditors for a cash settlement of amounts owed to them by the Company. Pursuant to these cash settlements, the Company paid an aggregate of $30,277 in complete satisfaction of $191,092 in accrued liabilities, resulting in income from the discharge of indebtedness of $160,815.
 
As part of the Reorganization, the Company also entered into Settlement Agreements with FWS and HIR for the issuance of common stock in complete settlement of amounts owed to them for services rendered. Pursuant to these Settlement Agreements, the Company issued an aggregate of 71,086 shares of common stock, on a post-reverse split basis, valued at $7,109 or approximately $0.10 per share, in satisfaction of accrued liabilities totaling $73,260, resulting in income from discharge of indebtedness of $66,151 being recorded.

5


As part of the Reorganization, the Company also entered into a settlement agreement with Laurus, the Company’s secured creditor, for the issuance of common stock in complete settlement of amounts owed to it for certain loans and accrued interest. Pursuant to the Laurus Settlement Agreement, the Company issued 1,083,172 shares of common stock, on a post-split basis, to Laurus valued at $108,317 or approximately $0.10 per share, in satisfaction of principal under notes of $820,024 and accrued interest of $121,095, resulting in income from discharge of indebtedness of $832,802 being recorded.
 
(b) Results of Operation

For the twelve months ended September 30, 2006 and 2007, the Company had no revenues from continuing operations.

For the twelve months ended September 30, 2007, the Company had a loss from operations of $(118,450), as compared with a loss from operations of $(381,602) for the twelve months ended September 30, 2006.

For the twelve months ended September 30, 2007, the Company incurred interest expense of $79,678, as compared with interest expense of $246,607 for the twelve months ended September 30, 2006. The reduction in interest expense was primarily attributed to payments made on certain notes issued to Laurus during the twelve months ended September 30, 2006 in connection with the Whitco bankruptcy and liquidation.

The Company had net earnings from discontinued operations of $66,304 during the twelve months ended September 30, 2006. The net earnings from discontinued operations were comprised of a loss from discontinued operations (net of tax) of $(2,149,123), which was offset by a gain of $2,215,427 on the disposition of the Whitco subsidiary.

The Company also had income on discharge of indebtedness of $1,059,768 during the twelve months ended September 30, 2006. This discharge income was related to the settlements made with various creditors of the Company including, Laurus, FWS and HIR.

For the twelve months ended September 30, 2007, the Company had net income of $861,640, primarily related to discharge income of $1,059,768 for the period, as compared with a net loss of $(561,905) for the twelve months ended September 30, 2006.

(c) Liquidity and Capital Resources

As of September 30, 2007, the Company had assets equal to $76,696, comprised exclusively of cash and cash equivalents. The Company’s current liabilities as of September 30, 2007 were $8,363, comprised exclusively of accrued expenses.
 
The following is a summary of the Company’s cash flows provided by (used in) operating, investing, and financing activities for the twelve months ended September, 2007 and 2006:

   
Twelve months ended September, 30
 
   
2007
 
2006
 
           
Operating activities
 
$
(80,581
)
$
344,364
 
Investing activities
   
-
   
-
 
Financing activities
 
$
157,277
 
$
(344,364
)
               
Net effect on cash
 
$
76,696
 
$
-
 

6


The Company currently has nominal assets, no active business operations and no sources of revenues. The Company is dependent upon the receipt of capital investment or other financing to fund its ongoing operations and to execute its business plan of seeking a combination with a private operating company. In addition, the Company is dependent upon certain related parties to provide continued funding and capital resources. If continued funding and capital resources are unavailable at reasonable terms, the Company may not be able to implement its plan of operations. Our financial statements indicate that without additional capital, there is substantial doubt as to our ability to continue as a going concern.  

(d) Plan of Operations  
 
Since the Company completed its Reorganization in September 2007, its business strategy and plan of operation has been to investigate and, if such investigation warrants, acquire a target operating company or business seeking the perceived advantages of being a publicly held corporation. Our principal business objective for the next 12 months and beyond such time will be to achieve long-term growth potential through a combination with a business rather than immediate, short-term earnings. The Company will not restrict our potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire any type of business.

The Company does not currently engage in any business activities that provide cash flow. The costs of investigating and analyzing business combinations for the next 12 months and beyond such time will be paid with money in our treasury or with additional amounts, as necessary, to be loaned to or invested in us by our stockholders, management or other investors.

During the next 12 months we anticipate incurring costs related to the filing of Exchange Act reports, and consummating a business combination.

We believe we will be able to meet these costs through use of funds in our treasury and additional amounts to be loaned by or invested in us by our stockholders, management or other investors. Currently, however, our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Our ability to continue as a going concern is also dependent on our ability to find a suitable target operating company and enter into a possible business combination with such operating company. Management’s plan includes obtaining additional funds by equity financing prior to or in connection with a business combination and/or related party advances; however, there is no assurance of additional funding being available.

The Company may consider a an operating business which has recently commenced operations, is a developing company in need of additional funds for expansion into new products or markets, is seeking to develop a new product or service, or is an established business which may be experiencing financial or operating difficulties and is in need of additional capital. In the alternative, a business combination may involve the acquisition of, or merger with, a company which does not need substantial additional capital, but which desires to establish a public trading market for its shares, while avoiding, among other things, the time delays, significant expense, and loss of voting control which may occur in a public offering.

Our sole officer and director has not had any preliminary contact or discussions with any representative of any other entity regarding a business combination with us. Any target business that is selected may be a financially unstable company or an entity in its early stages of development or growth, including entities without established records of sales or earnings. In that event, we will be subject to numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies. In addition, we may effect a business combination with an entity in an industry characterized by a high level of risk, and, although our management will endeavor to evaluate the risks inherent in a particular target business, there can be no assurance that we will properly ascertain or assess all significant risks.

7

 
Our management anticipates that it will likely be able to effect only one business combination, due primarily to our limited financing and the dilution of interest for present and prospective stockholders, which is likely to occur as a result of our management’s plan to offer a controlling interest to a target business in order to achieve a tax-free reorganization. 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.

The Company anticipates that the selection of a business combination will be complex and extremely risky. Because of general economic conditions, rapid technological advances being made in some industries and shortages of available capital, our management believes that there are numerous firms seeking even the limited additional capital which we will have and/or the perceived benefits of becoming a publicly traded corporation. Such perceived benefits of becoming a publicly traded corporation include, among other things, facilitating or improving the terms on which additional equity financing may be obtained, providing liquidity for the principals of and investors in a business, creating a means for providing incentive stock options or similar benefits to key employees, and offering greater flexibility in structuring acquisitions, joint ventures and the like through the issuance of stock. Potentially available business combinations may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex.

We do not currently intend to retain any entity to act as a "finder" to identify and analyze the merits of potential target businesses. However, at present, we contemplate that Keating Securities, LLC (“Keating Securities”), a Delaware limited liability company and a registered broker-dealer, may act as one of the finders of business combinations for the Company. Timothy J. Keating, the son of Kevin R. Keating, our sole officer and director, and a the manager of KIG Investors, our principal stockholder, is the Managing Member of, and holds approximately a 54% interest in, Keating Securities. There is currently no signed agreement or preliminary agreement or understanding between us and Keating Securities.

(e)   Going Concern  
 
We currently have no source of operating revenue, and have only limited working capital with which to pursue our business plan, which contemplates the completion of a business combination with an operating company. The amount of capital required to sustain operations until the successful completion of a business combination is subject to future events and uncertainties. It may be necessary for us to secure additional working capital through loans or sales of common stock, and there can be no assurance that such funding will be available in the future. These conditions raise substantial doubt about our ability to continue as a going concern. Our auditor has issued a "going concern" qualification as part of his opinion in the Audit Report for the year ended September 30, 2007.
 
(f)   Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. We believe that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions. We have identified in Note 2 “Summary of Significant Accounting Policies” to the Financial Statements contained in Part F/S of this document certain critical accounting policies that affect the more significant judgments and estimates used in the preparation of the financial statements.

8

 
(g)   Off-Balance Sheet Arrangements  

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.

RISK FACTORS

An investment in the Company is highly speculative in nature and involves an extremely high degree of risk. A prospective investor should consider the possibility of the loss of an investor’s entire investment and evaluate all information about us and the risk factors discussed below in relation to his financial circumstances before investing in us

There may be conflicts of interest between our management and the stockholders of the Company.

Conflicts of interest create the risk that management may have an incentive to act adversely to the interests of the stockholders of the Company.  A conflict of interest may arise between our management's personal pecuniary interest and its fiduciary duty to our stockholders. In addition, Kevin R. Keating, our sole officer and director, is currently involved with other public shell companies and conflicts in the pursuit of business combinations with such other public shell companies with which he is, and may in the future be, affiliated with may arise. If we and the other public shell companies that management is affiliated with desire to take advantage of the same opportunity, then members of management that are affiliated with both companies would abstain from voting upon the opportunity. In the event of identical officers and directors, members of management, such individuals will arbitrarily determine the company that will be entitled to proceed with the proposed transaction.

Additionally, we contemplate that at least one of the finders of business combinations for the Company will be Keating Securities. Timothy J. Keating, the manager of KIG Investors, our principal stockholder, and the son of Kevin R. Keating, our sole officer and director, is the Managing Member of, and holds approximately a 54% interest in, Keating Securities. We cannot assure you that conflicts of interest among us, Keating Securities and our stockholders will not develop.

We have no current operating business.

We currently have no relevant operating business, revenues from operations or assets. Our business plan is to seek a merger or business combination with an operating business. We may not realize any revenue unless and until we successfully combine with an operating business. We face all of the risks inherent in the investigation, acquisition, or involvement in a new business opportunity. An investor’s purchase of any of our securities must be regarded as placing funds at a high risk in a new or "start-up" venture with all of the unforeseen costs, expenses, problems, and difficulties to which such ventures are subject. We will, in all likelihood, 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. We cannot assure you that we can identify a suitable business opportunity and consummate a business combination.

There is competition for those private companies suitable for a business combination of the type contemplated by management.

We are in a highly competitive market for a small number of business opportunities which could reduce the likelihood of consummating a successful business combination. We are and will continue to be an insignificant participant in the business of seeking business combinations with operating entities that desire to become public companies. A large number of established and well-financed entities, including small public companies and venture capital firms, are active in mergers and acquisitions of companies that may be desirable target candidates for us. Nearly all these entities have significantly greater financial resources, technical expertise and managerial capabilities than we do; consequently, we will be at a competitive disadvantage in identifying possible business opportunities and successfully completing a business combination. These competitive factors may reduce the likelihood of our identifying and consummating a successful business combination.
 
9

 
Our future success is highly dependent on the ability of management to locate and attract a suitable acquisition.

The nature of our operations is highly speculative, and there is a consequent risk of loss of your investment. The success of our plan of operations will depend to a great extent on the operations, financial condition and management of the identified business opportunity. While management intends to seek business combination(s) with entities having established operating histories, we cannot assure you that we will be successful in locating candidates meeting that criterion. In the event we complete a business combination, the success of our operations may be dependent upon management of the successor firm or venture partner firm and numerous other factors beyond our control. In addition, even if we complete a business combination, there is no assurance that the business we acquire will generate revenues or profits, or that the value of our common stock will increase as a result of the acquired business opportunity.

We only intend to acquire a single business opportunity and thus your investment will lack diversification.

Because of our limited financial resources, it is unlikely that we will be able to diversify our acquisitions or operations. The inability to diversify our activities into more than one area will subject our investors and stockholders to economic fluctuations within a particular business or industry and therefore increase the risks associated with the investment. We only intend to engage in a business combination with one operating entity.

We have no existing agreement for a business combination or other transaction.

We have no arrangement, agreement or understanding with respect to engaging in a business combination with an operating business. No assurances can be given that we will successfully identify and evaluate suitable business opportunities or that we will conclude a business combination. Management has not identified any particular industry or specific business within an industry for evaluation. We cannot guarantee that 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. Further, management will seek to structure any such business combination so as not to require stockholder approval.

Management intends to devote only a limited amount of time to seeking a target company which may adversely impact our ability to identify a suitable acquisition candidate.
 
While seeking a business combination, management anticipates devoting very limited time to the Company's affairs. Our sole officer has not entered into a written employment agreement with us and is not expected to do so in the foreseeable future. This limited commitment may adversely impact our ability to identify and consummate a successful business combination. To supplement our search activities, we may be required to employ accountants, technical experts, appraisers, attorneys, or other consultants or advisors. Some of these outside advisors may be our affiliates or their affiliated entities. The selection of any such advisors will be made by our management without any input from stockholders, and the engagement of such persons may reduce the value of your investment.

The time and cost of preparing a private company to become a public reporting company may preclude us from entering into a merger or acquisition with the most attractive private companies.

Target companies that fail to comply with SEC reporting requirements may delay or preclude acquisition. Sections 13 and 15(d) of the Exchange Act require reporting companies to provide certain information about significant acquisitions, including certified financial statements for the company acquired, covering one, two, or three years, depending on the relative size of the acquisition. The time and additional costs that may be incurred by some target entities to prepare these statements may significantly delay or essentially preclude consummation of an acquisition. Otherwise suitable acquisition prospects that do not have or are unable to obtain the required audited statements may be inappropriate for acquisition so long as the reporting requirements of the Exchange Act are applicable. Further, the internal control management assessment and auditor attestation requirements under Section 404 of the Sarbanes-Oxley Act of 2002 may limit the number of suitable acquisition prospects if they cannot, or are unwilling to, comply with these requirements.
 
10

 
The Company 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 SEC as to our status under the Investment Company Act and, consequently, violation of the Investment Company Act could subject us to material adverse consequences.

Any potential acquisition or merger with a foreign company may subject us to additional risks.

If we enter into a business combination with a foreign company, we will be subject to risks inherent in business operations outside of the United States. These risks include, for example, currency fluctuations, regulatory problems, punitive tariffs, unstable local tax policies, trade embargoes, risks related to shipment of raw materials and finished goods across national borders and cultural and language differences. Foreign economies may differ favorably or unfavorably from the United States economy in growth of gross national product, rate of inflation, market development, rate of savings, and capital investment, resource self-sufficiency and balance of payments positions, and in other respects.

Shares of our common stock are currently very thinly traded, and liquidity of shares of our common stock is limited.

Shares of our common stock will be very thinly traded, and the price if traded may not reflect the value of the Company. Moreover, we just completed a reverse split of the shares which may not reflect the value of the Company either. In connection with a future business combination, we may have to undertake a further reverse split of our shares. There can be no assurance that there will be an active market for our shares either now or after we complete the business combination. The market liquidity will be dependant on the perception of the operating business and any steps that its management might take to bring the company to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business. If a more active market should develop, the price may be highly volatile. Because there may be a low price for our securities, many brokerage firms may not be willing to effect transactions in the securities. Even if an investor finds a broker willing to effect a transaction in the securities, the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the use of such securities as collateral for any loans. Our shares of common stock are currently quoted over-the-counter on the Pink Sheets quotation system. Management intends to strongly consider undertaking a business transaction with a private operating company which will allow our shares to be quoted and traded on the Over-the-Counter Bulletin Board (“OTC BB”), NASDAQ Global Market, NASDAQ Capital Market or a national exchange. However, there can be no assurance that, upon a business combination, we will qualify our shares for quotation or listing on NASDAQ or a national exchange, or be able to maintain the criteria necessary to insure continued quotation or listing.

11

 
We also intend to seek to have our shares of common stock quoted on the OTC BB prior to completion of the business combination; however, there can be no assurances that we will be able to obtain an OTC BB quotation prior to the business combination. In the event we are unable to obtain an OTC BB quotation prior to the business combination, the value of your investment may be reduced since certain attractive target operating businesses may only consider a combination with an OTC BB quoted company.

The majority of our shares currently outstanding are "restricted securities" within the meaning of Rule 144 under the Securities Act. As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemption from registration under the Securities Act and as required under applicable state securities laws. Rule 144 currently provides in essence that a person who has held restricted securities for a period of one year may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1.0% of a company's outstanding common stock. There is no limit on the amount of restricted securities that may be sold by a non-affiliate after the restricted securities have been held by the owner for a period of two years. Current stockholders who own 10% or more of our shares will likely be deemed an affiliate until 90 days after a business combination is completed with a target company. After such 90-day period and assuming said shares have been held for more than two years, these stockholders may be able to sell their shares without volume restrictions. A sale under Rule 144 or under any other exemption from the Securities Act, if available, or pursuant to subsequent registrations of our shares, may have a depressive effect upon the price of our shares in any market that may develop. The SEC has proposed new rules that may shortened the one year holding period under Rule 144 to six months in certain circumstances. There is no assurance that these proposed rules will ultimately be adopted by the SEC in its current form or any other form.

The availability of the exemptions from registration provided by Rule 144 under or Section 4(1) of the Securities Act may be limited in accordance with the letter from Richard K. Wulff, Chief of the Office of Small Business Policy of the Securities and Exchange Commission’s Division of Corporation Finance, to Ken Worm of NASD Regulation, dated January 21, 2000 (the “Wulff Letter”). The Wulff Letter provides that certain private transfers of the shares of common stock also may be prohibited without registration under federal securities laws. The SEC has proposed codifying certain aspects of the Wulff Letter and adjusting some of its provisions. The proposed adjustments include allowing stockholders of a company that was formerly a shell company to be able to utilize the exemption from registration under Rule 144 under certain circumstances following such time as the company is no longer a shell company and certain disclosures have been completed. There is no assurance that this proposal will ultimately be adopted by the SEC in its current form or any other form.

Compliance with the criteria for securing exemptions under federal securities laws and the securities laws of the various states is extremely complex, especially in respect of those exemptions affording flexibility and the elimination of trading restrictions in respect of securities received in exempt transactions and subsequently disposed of without registration under the Securities Act or state securities laws.

There are issues impacting liquidity of our securities with respect to the SEC’s review of a future resale registration statement.

A majority of our shares of common stock currently outstanding are “restricted securities”, the holders thereof have certain registration rights. As such, following the business combination, we will likely file a resale registration statement on Form SB-2 or Form S-1, or some other available form, to register for resale such shares of common stock. In some cases, we are obligated to file a registration statement for certain restricted shares pursuant to certain registration rights agreements. We cannot control this future registration process in all respects as some matters are outside our control. Even if we are successful in causing the effectiveness of the resale registration statement, there can be no assurances that the occurrence of subsequent events may not preclude our ability to maintain the effectiveness of the registration statement. Any of the foregoing items could have adverse effects on the liquidity of our shares of common stock. Further, a sale of our shares pursuant to an effective registration may have a depressive effect upon the price of our shares in any market that may develop.

12

 
In addition, the SEC has recently disclosed that it has developed internal guidelines concerning the use of a resale registration statement to register the securities issued to certain investors in private investment in public equity (PIPE) transactions, where the issuer has a market capitalization of less than $75 million and, in general, does not qualify to file a registration statement on Form S-3 to register its securities. The SEC has taken the position that these smaller issuers may not be able to rely on Rule 415 under the Securities Act (“Rule 415”), which generally permits the offer and sale of securities on a continued or delayed basis over a period of time, but instead would require that the issuer offer and sell such securities in a direct or "primary" public offering, at a fixed price, if the facts and circumstances are such that the SEC believes the investors seeking to have their shares registered are underwriters and/or affiliates of the issuer. It appears that the SEC in most cases will permit a registration for resale of up to one third of the total number of shares of common stock then currently owned by persons who are not affiliates of such issuer and, in some cases, a larger percentage depending on the facts and circumstances. Staff members also have indicated that an issuer in most cases will have to wait until the later of six months after effectiveness of the first registration or such time as substantially all securities registered in the first registration are sold before filing a subsequent registration on behalf of the same investors. Since, following a reverse merger or business combination, we may have only a limited number of tradable shares of common stock, it is unclear as to how many, if any, shares of common stock the SEC will permit us to register for resale, but SEC staff members have indicated a willingness to consider a higher percentage in connection with registrations following reverse mergers with shell companies such as the Company. The SEC may require as a condition to the declaration of effectiveness of a resale registration statement that we reduce or “cut back” the number of shares of common stock to be registered in such registration statement. The result of the foregoing is that a stockholder’s liquidity in our common stock may be adversely affected in the event the SEC requires a cut back of the securities as a condition to allow the Company to rely on Rule 415 with respect to a resale registration statement, or, if the SEC requires us to file a primary registration statement.

We have never paid dividends on our common stock.

We have never paid dividends on our common stock and do not presently intend to pay any dividends in the foreseeable future. We anticipate that any funds available for payment of dividends will be re-invested into the Company to further its business strategy.

The Company may be subject to certain tax consequences in our business, which may increase our cost of doing business.

We may not be able to structure our acquisition to result in tax-free treatment for the companies or their stockholders, which could deter third parties from entering into certain business combinations with us or result in 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, 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 both us and the target entity; however, we cannot guarantee that 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 both parties to the transaction.

13

 
The Company intends to issue more shares in a business combination, which will result in substantial dilution.

         Our Certificate of Incorporation authorizes the issuance of a maximum of 200,000,000 shares of common stock and a maximum of 10,000,000 shares of preferred stock. Any business combination effected by us may result in the issuance of additional securities without stockholder approval and may result in substantial dilution in the percentage of our common stock held by our then existing stockholders. Moreover, the common stock issued in any such business combination transaction may be valued on an arbitrary or non-arm’s-length basis by our management, resulting in an additional reduction in the percentage of common stock held by our then existing stockholders. Our Board of Directors has the power to issue any or all of such authorized but unissued shares without stockholder approval. To the extent that additional shares of common stock or preferred stock are issued in connection with a business combination or otherwise, dilution to the interests of our stockholders will occur and the rights of the holders of common stock may be materially adversely affected.

Our principal stockholder may engage in a transaction to cause the Company to repurchase its shares of common stock.

In order to provide an interest in the Company to a third parties, our principal stockholder may choose to cause the Company to sell Company securities to one or more third parties, with the proceeds of such sale(s) being utilized by the Company to repurchase shares of common stock held by it. As a result of such transaction, our management, principal stockholder(s) and Board of Directors may change.

The Company has conducted no market research or identification of business opportunities, which may affect our ability to identify a business to merge with or acquire.
 
        The Company has not conducted market research concerning prospective business opportunities, nor have others made the results of such market research available to the Company. Therefore, we have no assurances that market demand exists for a merger or acquisition as contemplated by us. Our management has not identified any specific business combination or other transactions for formal evaluation by us, such that it may be expected that any such target business or transaction will present such a level of risk that conventional private or public offerings of securities or conventional bank financing will not be available. There is no assurance that we will be able to acquire a business opportunity on terms favorable to us. Decisions as to which business opportunity to participate in will be unilaterally made by our management, which may act without the consent, vote or approval of our stockholders.

Because we may seek to complete a business combination through a “reverse merger”, following such a transaction we may not be able to attract the attention of major brokerage firms.
 
Additional risks may exist since we will assist a privately held business to become public through a “reverse merger.” Securities analysts of major brokerage firms may not provide coverage of our Company since there is no incentive to brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on behalf of our post-merger company in the future.
 
14

 
We cannot assure you that following a business combination with an operating business, our common stock will be listed on NASDAQ or any other securities exchange.
 
Following a business combination, we may seek the listing of our common stock on NASDAQ or the American Stock Exchange. However, we cannot assure you that following such a transaction, we will be able to meet the initial listing standards of either of those or any other stock exchange, or that we will be able to maintain a listing of our common stock on either of those or any other stock exchange. After completing a business combination, until our common stock is listed on the NASDAQ or another stock exchange, we expect that our common stock would be eligible to trade on the OTC Bulletin Board, another over-the-counter quotation system, or on the “pink sheets,” where our stockholders may find it more difficult to dispose of shares or obtain accurate quotations as to the market value of our common stock. In addition, we would be subject to an SEC rule that, if it failed to meet the criteria set forth in such rule, imposes various practice requirements on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited investors. Consequently, such rule may deter broker-dealers from recommending or selling our common stock, which may further affect its liquidity. This would also make it more difficult for us to raise additional capital following a business combination.
 
Our Certificate of Incorporation authorizes the issuance of preferred stock by our Board of Directors.

Our Certificate of Incorporation authorizes the issuance of up to 10,000,000 shares of preferred stock with designations, rights and preferences determined from time to time by our Board of Directors. Accordingly, our Board of Directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting, or other rights which could adversely affect the voting power or other rights of the holders of the common stock. In the event of issuance, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. Although we have no present intention to issue any shares of its authorized preferred stock, there can be no assurance that the Company will not do so in the future.
 
Item 3. Description of Property

The Company neither rents nor owns any properties. The Company utilizes the office space and equipment of its sole officer and director at no cost. Management estimates such amounts to be immaterial. The Company currently has no policy with respect to investments or interests in real estate, real estate mortgages or securities of, or interests in, persons primarily engaged in real estate activities.

Item 4. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information regarding the Company’s common stock beneficially owned on November 30, 2007, for (i) each shareholder the Company knows to be the beneficial owner of 5% or more of its outstanding common stock, (ii) each of the Company’s executive officers and directors, and (iii) all executive officers and directors as a group. In general, a person is deemed to be a "beneficial owner" of a security if that person has or shares the power to vote or direct the voting of such security, or the power to dispose or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which the person has the right to acquire beneficial ownership within 60 days. To the best of the Company’s knowledge, all persons named have sole voting and investment power with respect to such shares, except as otherwise noted. At November 30, 2007, 4,331,131 shares of the Company’s common stock were outstanding.
 
15

 
Name and Address
 
Number of Shares
Beneficially Owned
 
Percent of Shares
 
Dennis Depenbusch (1)
c/o LRTC
1617 St. Andrew Drive
Lawrence, KS 66047
   
181,298
   
4.2
%
               
Kevin R. Keating
936A Beachland Boulevard, Suite 13
Vero Beach, Florida 32963
   
96,880
   
2.2
%
               
Laurus Master Fund, Ltd
33
5 Madison Avenue, 10th Floor
New York, NY 10017
   
1,108,172
   
25.6
%
               
KIG Investors I, LLC (3)
c/o Timothy J. Keating, Manager
5251 DTC Parkway, Suite 1090
Greenwood Village, Colorado 80111
   
2,562,015
   
59.2
%
               
Keating Investments, LLC (4)
c/o Timothy J. Keating, Manager
5251 DTC Parkway, Suite 1090
Greenwood Village, Colorado 80111
   
2,596,979
   
60.0
%
               
Timothy J. Keating
5251 DTC Parkway, Suite 1090
Greenwood Village, Colorado 80111
   
2,596,979
   
60.0
%
               
All Executive Officers and Directors as a group
   
96,880
   
2.2
%

 
(1)
Dennis Depenbusch was the former Chief Executive Officer, Chief Financial Officer and director of the Company. He resigned from these positions on August 23, 2007.

 
(2)
Kevin R. Keating has been a director of the Company since March 2001. He was appointed Chief Executive Officer, Chief Financial Officer, President, Secretary and Treasurer on August 23, 2007.
 
 
(3)
Represents shares of common stock held directly by KIG Investors I, LLC (“KIG Investors”). KIG Investors is managed by Keating Investments, LLC (“Keating Investments”) and Timothy J. Keating. Keating Investments has a 68.75% equity interest in KIG Investors.

 
(4)
Keating Investments has voting and investment control over the securities owned by KIG Investors, and therefore may be deemed a beneficial owner of the 2,562,015 shares of common stock owned by KIG Investors. Keating Investments’ beneficial ownership includes 34,964 shares of common stock owned directly by Keating Investments. Keating Investments is managed by Timothy J. Keating.

 
(5)
Timothy J. Keating has voting and investment control over the securities beneficially owned by Keating Investments. Since Keating Investments may be deemed a beneficial owner of the shares of common stock held by KIG Investors, Timothy J. Keating may be deemed an indirect beneficial owner of the 2,562,015 shares of common stock held by KIG Investors. Timothy J. Keating has voting and investment control over the securities owned by Keating Investments, and therefore Timothy J. Keating may be deemed a beneficial owner of the 2,596,979 shares of common stock deemed beneficially owned by KIG Investors.

16

 
Item 5. Directors, Executive Officers, Promoters and Control Persons

(a)   Identification of Directors and Executive Officers

Our sole officer and director and additional information concerning him is as follows:

Name
 
Age
 
Position
Kevin R. Keating
 
67
 
Chief Executive Officer, Chief Financial
Officer, President, Secretary and
Treasurer and Director
 
The term of office of each director expires at our annual meeting of stockholders or until their successors are duly elected and qualified. Except as set forth in Item 6 of this Registration Statement, the Directors are not compensated for serving as such. Officers serve at the discretion of the Board of Directors.
 
Kevin R. Keating   has served as a director of the Company since its inception. Mr. Keating was appointed Chief Executive Officer, Chief Financial Officer, President, Secretary and Treasurer on August 23, 2007. Mr. Keating is the Managing Member of Vero Management, LLC, which provides managerial, administrative, and financial consulting services for micro-cap public companies. 
 
For more than 40 years he has been engaged in various aspects of the investment business.  Mr. Keating began his Wall Street career with the First Boston Corporation in New York in 1965. From 1967 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 Exchange member firm. From 1982 through 2006, he was associated with a variety of securities firms as a registered representative servicing the investment needs of high net worth individual investors. 
 
Additionally, Mr. Keating currently serves as director of the following public companies: Blue Holdings, Inc. and DigitalFX International, Inc. Mr. Keating serves as sole officer and a director of Solar Group, Inc., a public shell company, which trades on the Pink Sheets under the symbol “SLRG.” Also, he is the sole officer and director of Wentworth IV, Inc., Wentworth V, Inc., Wentworth VI, Inc., Wentworth VII, Inc., and Wentworth VIII, Inc., all of which are publicly-reporting, non-trading, blank check, shell companies.

Mr. Keating serves as the sole officer and a director of Frezer, Inc., the sole officer and director of IPORUSSIA, Inc., and the sole officer and director of QuikByte Software, Inc., all of which are public shell companies which trade on the Over-the-Counter Bulletin Board under the symbols “FRZR”, “IPOR”, and “QBYT”, respectively.

The prior blank check company experience of Mr. Keating is set forth below:

17

 
Name
 
Filing Date
Registration
Statement
 
Operating Status
 
SEC File
Number
 
Pending
Business
Combinations
 
Additional
Information
AeroGrow International, Inc. (formerly Wentworth I, Inc.)
 
March 7, 2006
 
Wentworth I, Inc. was a Rule 419 Blank Check company and completed a merger with and into AeroGrow International Inc. on February 24, 2006.
 
000-50888
 
None.
 
Kevin R. Keating served as officer, director and shareholder since inception. Upon the merger with AeroGrow International, Inc., Mr. Keating ceased to be an officer or director. Mr. Keating remains a shareholder.
                     
Wentworth II, Inc.
 
June 9, 2006
 
Wentworth II, Inc. became a reporting company effective August 10, 2006 and completed a merger with Omnia Luo Group Limited on October 9, 2007.
 
000-52040
 
None.
 
Kevin R. Keating served as sole officer and director since inception. Mr. Keating ceased to be an officer or director on October 9, 2007. Mr. Keating remains a shareholder.
                     
Wentworth IV, Inc.
 
August 17, 2006
 
Effective October 16, 2006.
 
000-52189
 
None.
 
Kevin R. Keating has served as sole officer and director since inception.
                     
Wentworth V, Inc.
 
August 17, 2006
 
Effective October 16, 2006.
 
000-52190
 
None.
 
Kevin R. Keating has served as sole officer and director since inception.
                     
Wentworth VI, Inc.
 
September 20, 2007
 
Effective November 19, 2007.
 
000-52821
 
None.
 
Kevin R. Keating has served as sole officer and director since inception.
                     
Wentworth VII, Inc.
 
September 20, 2007
 
Effective November 19, 2007.
 
000-52820
 
None.
 
Kevin R. Keating has served as sole officer and director since inception.
                     
Wentworth VIII, Inc.
 
September 20, 2007
 
Effective November 19, 2007.
 
000-52819
 
None.
 
Kevin R. Keating has served as sole officer and director since inception.

18

 
(b)   Significant Employees
 
None.
 
(c)   Family Relationships

Timothy J. Keating, who may be deemed a beneficial owner of shares of the Company’s common stock by virtue of his relationship with KIG Investors and Keating Investments, is the son of Kevin R. Keating, our Chief Executive Officer, Chief Financial Officer, President, Secretary, Treasurer and sole director.

(d)   Involvement in Certain Legal Proceedings

There have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any director, executive officer, promoter or control person of the Company during the past five years.

(e)   Audit Committee and Audit Committee Financial Expert

The Company is not a "listed company" under SEC rules and is therefore not required to have an audit committee comprised of independent directors. The Company does not currently have an audit committee, however, for certain purposes of the rules and regulations of the SEC and in accordance with the Sarbanes-Oxley Act of 2002 , the Company's board of directors is deemed to be its audit committee and as such fu nctions as an audit committee and performs some of the same functions as an audit committee including: (1) selection and oversight of the Company’s independent accountant; (2) establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters; and (3) engaging outside advisors. The Company 's board of directors has determined that its members do not include a person who is an "audit committee financial expert" within the meaning of the rules and regulations of the SEC. The board of directors has determined that each of its members is able to read and understand fundamental financial statements and has substantial business experience that results in that member's financial sophistication. Accordingly, the board of directors believes that each of its members have the sufficient knowledge and experience necessary to fulfill the duties and obligations that an audit committee would have.

(f)   Code of Ethics

A code of ethics relates to written standards that are reasonably designed to deter wrongdoing and to promote:
 
·       Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

·       Full, fair, accurate, timely and understandable disclosure in reports and documents that are filed with, or submitted to, the SEC and in other public communications made by an issuer;
 
·       Compliance with applicable governmental laws, rules and regulations;
 
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·       The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and
 
·       Accountability for adherence to the code.
 
Due to the limited scope of the Company’s current operations, the Company has not adopted a corporate code of ethics that applies to its executive officers.

(g)   Conflicts of Interest

Certain conflicts of interest exist and may continue to exist between the Company and its officers and directors due to the fact that each has other business interests to which they devote their primary attention. Each officer and director may continue to do so notwithstanding the fact that management time should be devoted to the business of the Company.

Certain conflicts of interest may exist between the Company and its management, and conflicts may develop in the future. The Company has not established policies or procedures for the resolution of current or potential conflicts of interest between the Company, its officers and directors or affiliated entities. There can be no assurance that management will resolve all conflicts of interest in favor of the Company, and conflicts of interest may arise that can be resolved only through the exercise by management their best judgment as may be consistent with their fiduciary duties. Management will try to resolve conflicts to the best advantage of all concerned.
 
(h)   Board Meetings; Nominating and Compensation Committees
 
The Board of Directors took a number of actions by written consent of all of the directors during the fiscal year ended September 30, 2007. Such actions by the written consent of all directors are, according to Delaware corporate law and the Company’s by-laws, as valid and effective as if they had been passed at a meeting of the directors duly called and held. The Company's directors and officers do not receive remuneration from the Company unless approved by the Board of Directors or pursuant to an employment contract. No compensation has been paid to the Company's directors for attendance at any meetings during the last fiscal year.

The Company does not have standing nominating or compensation committees, or committees performing similar functions. The Company’s board of directors believes that it is not necessary to have a compensation committee at this time because the functions of such committee are adequately performed by the board of directors. The board of directors also is of the view that it is appropriate for the Company not to have a standing nominating committee because the board of directors has performed and will perform adequately the functions of a nominating committee. The Company is not a "listed company" under SEC rules and is therefore not required to have a compensation committee or a nominating committee.

(i)   Shareholder Communications

There has not been any defined policy or procedure requirements for stockholders to submit recommendations or nomination for directors. The board of directors does not believe that a defined policy with regard to the consideration of candidates recommended by stockholders is necessary at this time because it believes that, given the limited scope of the Company’s operations, a specific nominating policy would be premature and of little assistance until the Company’s business operations are at a more advanced level. There are no specific, minimum qualifications that the board of directors believes must be met by a candidate recommended by the board of directors. Currently, the entire board of directors decides on nominees, on the recommendation of any member of the board of directors followed by the board’s review of the candidates’ resumes and interview of candidates. Based on the information gathered, the board of directors then makes a decision on whether to recommend the candidates as nominees for director. The Company does not pay any fee to any third party or parties to identify or evaluate or assist in identifying or evaluating potential nominee.

20

 
The Company does not have any restrictions on shareholder nominations under its certificate of incorporation or by-laws. The only restrictions are those applicable generally under Delaware corporate law and the federal proxy rules, to the extent such rules are or become applicable. The board of directors will consider suggestions from individual shareholders, subject to evaluation of the person's merits. Stockholders may communicate nominee suggestions directly to the board of directors, accompanied by biographical details and a statement of support for the nominees. The suggested nominee must also provide a statement of consent to being considered for nomination. There are no formal criteria for nominees.

Because the management and directors of the Company are the same persons, the Board of Directors has determined not to adopt a formal methodology for communications from shareholders on the belief that any communication would be brought to the board of directors’ attention by virtue of the co-extensive capacities served by Kevin R. Keating.

(j)   Indemnification

Under Delaware corporate law and pursuant to our certificate of incorporation and bylaws, the Company may indemnify its officers and directors for various expenses and damages resulting from their acting in these capacities. I nsofar as indemnification for liabilities arising under the Securities Act may be permitted to the Company’s officers or directors pursuant to the foregoing provisions, the Company has been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act, and is therefore unenforceable.

Item 6. Executive Compensation
 
(a) Compensation Discussion and Analysis
 
The Company currently is a shell company with nominal assets, no employees and no active business operations. The Company’s business plans are to identify an operating company with which to merge or to complete a business combination in a reverse merger transaction. As such, the Company currently has no formal compensation program for its executive officers, directors or employees.
 
The Company is not a "listed company" under SEC rules and is therefore not required to have a compensation committee. Accordingly, the Company has no compensation committee.
 
Except as set forth in the summary compensation table below, during the fiscal years ended September 30, 2006 and 2007, the Company has not provided any salary, bonus, annual or long-term equity or non-equity based incentive programs, health benefits, life insurance, tax-qualified savings plans, special employee benefits or perquisites, supplemental life insurance benefits, pension or other retirement benefits or any type of nonqualified deferred compensation programs for its executive officers or employees.
 
On September 14, 2007, the Company issued Kevin R. Keating 86,653 shares of the Company’s common stock, on a post-reverse split basis, valued at $8,665 for consulting services provided by Mr. Keating. Mr. Keating will not receive any further remuneration until the consummation of a business combination. However, please see Item 7, Certain Relationships and Related Transactions, below for a full discussion of a certain agreement between the Company and Vero Management, L.L.C., a limited liability company for which Mr. Keating is the sole member and manager. Mr. Keating intends to devote very limited time to our affairs.
 
21


It is possible that, after the Company successfully consummates a business combination with an unaffiliated entity, that entity may desire to employ or retain Mr. Keating for the purposes of providing services to the surviving entity. However, the Company has adopted a policy whereby the offer of any post-transaction employment or services to members of management will not be a consideration in our decision whether to undertake any proposed transaction.

No retirement, pension, profit sharing, stock option or insurance programs or other similar programs are currently in place for the benefit of the Company’s employees.
 
As of October 1, 2005, there were issued and outstanding options to purchase 9,828 shares of the Company’s common stock, on a post-reverse split basis, and there were 140,172 options available for issuance under the 2003 Stock Option Plan. During the fiscal year ended September 30, 2006, the options to purchase 9,828 shares of common stock under the 2003 Stock Option Plan were cancelled. On September 14, 2007, following the closing of the Preferred Stock Purchase, the 2003 Stock Option Plan was terminated by the Company’s Board of Directors, and there are no stock options outstanding as of the date of this filing.
 
There are no understandings or agreements regarding compensation our management will receive after a business combination that is required to be included in this table, or otherwise.
 
(b)   Summary Compensation Table
 
The following table summarizes the total compensation paid to or earned by each of the Company’s named executive officers who served as executive officers during all or a portion of the fiscal years ended September 30, 2006 and 2007.
 
(a)
 
(b)
 
(c)
 
(d)
 
(e)
 
(f)
 
(g)
 
(h)
 
(i)
 
(j)
 
Name and
Principal
Position
 
Year
 
Salary
($)
 
Bonus
($)
 
Stock
Awards
($)
 
Option
Awards
($)
 
Non-
equity
Incentive
Plan
Compen-
sation
($)
 
Non-
qualified
Deferred
Compen-
sation Earnings
($)
 
All Other
Compensation
($)
 
Total
Compensation
($)
 
Dennis Depenbusch
   
2007
 
$
0
 
$
0
 
$
2,000
 
$
0
 
$
0
 
$
0
 
$
0
 
$
2,000
 
(former CEO and CFO)(1)    
2006
 
$
76,000
 
$
0
 
$
0
 
$
0
 
$
0
 
$
0
 
$
3,000
 
$
79,000
 
Kevin R. Keating
   
2007
 
$
0
 
$
0
 
$
8,665
 
$
0
 
$
0
 
$
0
 
$
0
 
$
8,665
 
(CEO, Pres., CFO, Tres. and Secry.)(1)    
2006
 
$
0
 
$
0
 
$
0
 
$
0
 
$
0
 
$
0
 
$
0
 
$
0
 
 
(1) The Company, through its former wholly owned subsidiary, Whitco, paid to its former CEO, Dennis Depenbusch, a salary of approximately $76,000 for the period from October 1, 2005 to March 31, 2006. On September 14, 2007, the Company issued Dennis Depenbusch 20,000 shares of the Company’s common stock, on a post-reverse split basis, valued at $2,000 for consulting services provided by Mr. Depenbusch in connection with the Reorganization. The Company, though Whitco, paid for Mr. Depenbusch’s health insurance coverage for the period from October 1, 2005 to March 31, 2006 which was valued at approximately $3,000.
 
22

 
(2) On September 14, 2007, the Company issued Kevin R. Keating 86,654 shares of the Company’s common stock, on a post-reverse split basis, valued at $8,665 for consulting services provided by Mr. Keating.
 
(c) Employment and Other Agreements
The Company has no employment agreements or other agreements with any of its executive officers or employees.

(d)   Compensation of Directors

During the fiscal years ended September 30, 2006 and 2007, Messrs. Depenbusch and Keating did not receive separate compensation for their services as a director.
 
Item 7. Certain Relationships and Related Transactions

On August 22, 2007, the Company entered into a revolving loan agreement with Keating Investments, LLC (“Lender”). Pursuant to this agreement, t he Lender agreed to make advances to the Company from time to time at the request of the Company. The advances outstanding were not to exceed $30,000. The Company was required to repay the outstanding advances in full on or before October 22, 2007. The advances bear interest commencing September 22, 2007 at a rate of 6% per annum. The Lender made advances of $25,000 and $5,000 on August 27, 2007 and September 5, 2007, respectively. The advances were used for working capital purposes and to pay certain accrued liabilities and service providers. On September 19, 2007, these advances were repaid in full from the proceeds of the Preferred Stock Purchase. Keating Investments, LLC is the managing member of KIG Investors. A copy of the Loan Agreement is attached hereto as Exhibit 10.10.

On September 14, 2007, the Company issued 86,654 shares of its common stock, on a post-reverse split basis, to Kevin R. Keating, the sole officer and director of the Company, for services rendered to the Company valued at $8,665.

On September 14, 2007, the Company issued 20,000 shares of its common stock, on a post-reverse split basis, to Dennis Depenbusch, a former officer and director of the Company, for consulting services rendered to the Company valued at $2,000.

During the fiscal years ended September 30, 2006 and 2007, a former officer and director of the Company made cost advances on behalf of the Company totaling $5,015. These advances were repaid by the Company from the proceeds of the Preferred Stock Purchase.

Effective October 1, 2007, the Company entered into a management agreement (“Management Agreement”) with Vero Management, L.L.C., a Delaware limited liability company (“Vero”) under which Vero had agreed to provide a broad range of managerial and administrative services to the Company including, but not limited to, assistance in the preparation and maintenance of the Company’s financial books and records, the filing of various reports with the appropriate regulatory agencies as are required by State and Federal rules and regulations, the administration of matters relating to the Company’s shareholders including responding to various information requests from shareholders as well as the preparation and distribution to shareholders of relevant Company materials, and to provide office space, corporate identity, telephone and fax services, mailing, postage and courier services for a fixed fee of $1,000 per month, for an initial period of twelve months. At the end of the initial twelve month term, the agreement will continue to remain in effect until terminated in writing by either party. Kevin R. Keating, the sole officer and director of the Company, is the sole owner and manager of Vero. A copy of the Management Agreement is attached hereto as Exhibit 10.12.

23

 
Except as otherwise indicated herein, there have been no related party transactions, or any other transactions or relationships required to be disclosed pursuant to Item 404 of Regulation S-B.

Item 8. Description of Securities

(a) Common and Preferred Stock

The Company is authorized by its Certificate of Incorporation, as amended, to issue an aggregate of 210,000,000 shares of capital stock, of which 200,000,000 are shares of common stock, par value $0.0001 per share (the "Common Stock") and 10,000,000 are shares of preferred stock, par value $0.0001 per share (the “Preferred Stock”).

On August 27, 2007, the Company’s Board of Directors designated 1,600,000 shares of preferred stock as Series A Convertible Preferred Stock (“Series A Preferred Stock”). A copy of the Certificate of Designation of Series A Convertible Preferred Stock is attached hereto as Exhibit 3.2. Each share of Series A Preferred Stock was automatically convertible into 16.28982 shares of fully paid and non-assessable common stock upon the Company’s completion of a reverse stock split. The holders of Series A Preferred Stock were entitled to vote the number of shares of common stock they were entitled to upon conversion on all matters presented to a vote of the common stockholders.

On September 12, 2007, the Company completed the sale of 1,572,770 shares of Series A Preferred Stock to KIG Investors for a purchase price of $157,277. The shares of Series A Preferred Stock were automatically convertible into the Company’s common stock at such time as the Company completed a 1-for-10 reverse stock split (“Reverse Split”).

On September 25, 2007, the Company completed a 1-for-10 reverse stock split of its outstanding common stock. The Reverse Split provided for the round up of fractional shares and the special treatment of certain shareholders as follows:

a. shareholders holding less than 100 shares of common stock as of the record date will not be affected by the Reverse Split and will hold the same number of shares both before and after the Reverse Split;

b. shareholders holding 1,000 or fewer shares of common stock, but at least 100 shares of common stock as of the record date will hold 100 shares of common stock following the Reverse Split; and

c. all fractional shares as a result of the Reverse Split will be rounded up.

As a result of the Reverse Split, the Series A Preferred Stock held by KIG Investors were automatically converted into 2,562,015 shares of common stock, on a post-reverse split basis. Upon the conversion of the Series A Preferred Stock, the 1,600,000 shares of Preferred Stock previously designated as Series A Preferred Stock were automatically returned to the status of authorized and unissued shares of preferred stock, available for future designation and issuance pursuant to the terms of the Certificate of Incorporation.

In connection with the Reverse Split, effective September 25, 2007, the Company also amended its certificate of incorporation to reduce the par value of its common stock and preferred stock from $0.01 to $0.0001 per share and to increase the number of authorized shares of common stock from 40,000,000 to 200,000,000 shares.

24

 
As of December 3, 2007, after giving effect to the Reverse Split, there were 4,331,131 shares of common stock, par value $0.0001 per share, issued and outstanding. Except as otherwise noted, all references to shares of the Company’s common stock herein shall refer to the shares of common stock after giving effect to the Reverse Split and the reduction of the par value per share.

Common Stock

All outstanding shares of Common Stock are of the same class and have equal rights and attributes. The holders of Common Stock are entitled to one vote per share on all matters submitted to a vote of stockholders of the Company. All stockholders are entitled to share equally in dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available. In the event of liquidation, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of all liabilities. The stockholders do not have cumulative or preemptive rights.

Preferred Stock

Our Certificate of Incorporation authorizes the issuance of up to 10,000,000 shares of Preferred Stock with designations, rights and preferences determined from time to time by its Board of Directors. Accordingly, our Board of Directors is empowered, without stockholder approval, to issue Preferred Stock with dividend, liquidation, conversion, voting, or other rights which could adversely affect the voting power or other rights of the holders of the Common Stock. In the event of issuance, the Preferred Stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. Although we have no present intention to issue any shares of our authorized Preferred Stock, there can be no assurance that the Company will not do so in the future.

The description of certain matters relating to the securities of the Company is a summary and is qualified in its entirety by the provisions of the Company's Certificate of Incorporation and By-Laws, copies of which have been filed as exhibits to this Form 10-SB.

Registration Rights Granted to the Investor and Laurus

On September 12, 2007, the Company offered certain registration rights to KIG Investors in connection with the Preferred Stock Purchase, pursuant to the terms and conditions contained in that certain registration rights agreement, a copy of which is attached hereto as Exhibit 10.4 (the “KIG Registration Rights Agreement”). On September 14, 2007, the Company offered certain registration rights to Laurus in connection with the issuance of shares of the Company’s common stock in settlement of certain debt obligations, pursuant to the terms and conditions contained in that certain registration rights agreement, a copy of which is attached hereto as Exhibit 10.9 (“Laurus Registration Rights Agreement”). The terms and conditions of the KIG Registration Rights Agreement and the Laurus Registration Rights Agreement are substantially similar. The KIG Registration Rights Agreement and the Laurus Registration Rights Agreement are referred to herein as the “ Registration Rights Agreements”. The number of shares subject to registration rights for each of the above holders is as follows:

Stockholder
 
Number of Shares Subject to Registration
Rights (on a post-reverse split basis)
 
KIG Investors I, LLC
   
2,562,015
 
Laurus Master Fund, Ltd.
   
1,083,172
 
 
25

 
Pursuant to the Registration Rights Agreements, commencing on the date that is thirty (30) days after the date the Company completes a business combination with a private company in a reverse merger or reverse take-over transaction (a “Reverse Merger”), the stockholders shall each have a separate one-time right to request the Company to register for resale the shares of Common Stock held by such persons. The Company is required to cause the registration statement filed as a result of such requests to be declared effective under the Securities Act as promptly as possible after the filing thereof and shall keep the demand registration statement continuously effective under the Securities Act until the earlier of (i) two years after its effective date, (ii) such time as all of the shares of Common Stock covered by such registration statement have been publicly sold by the stockholders, or (iii) such time as all of the shares of Common Stock covered by such registration statement may be sold by the stockholders pursuant to Rule 144(k). Further, if all of the shares of Common Stock to be included in the registration statement filed cannot be so included due to certain comments from the SEC, and there is not an effective registration statement otherwise covering the shares of Common Stock, then the Company is obligated to prepare and file such registration statement(s) for such number of additional registration statements as may be necessary in order to ensure that all shares of Common Stock are covered by an existing and effective registration statement.

Additionally, the Registration Rights Agreement provides the stockholders with “piggyback” registration rights such that at any time there is not an effective registration statement covering the shares of Common Stock, and the Company files a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then the Company is required to send written notice to the stockholders of such intended filings at least twenty (20) days prior thereto and is required to automatically include in such registration statement all shares of Common Stock held by the stockholders for resale and offer on a continuous basis pursuant to Rule 415; provided, however, that (i) if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company determines for any reason not to proceed with such registration, the Company will be relieved of its obligation to register any shares of Common Stock in connection with such registration, (ii) in case of a determination by the Company to delay registration of its securities, the Company will be permitted to delay the registration of shares of Common Stock for the same period as the delay in registering such other securities, (iii) each stockholder is subject to confidentiality obligations with respect to any information gained in this process or any other material non-public information he, she or it obtains, (iv) each stockholder is subject to all applicable laws relating to insider trading or similar restrictions; and (v) if all of the shares of Common Stock of the stockholders cannot be so included due to certain comments from the SEC, then the Company may reduce the number of each stockholders’ shares of Common Stock covered by such registration statement to the maximum number which would enable the Company to conduct such offering in accordance with the provisions of Rule 415.  

The stockholders shall be entitled to include all shares of Common Stock for resale in the registration statement filed by the Company in connection with a public offering of equity securities by the Company, pursuant to Rule 415, so long as (1) such shares shall not be included as part of the underwritten offering of primary shares by the Company, unless the Company and underwriter agree to allow the inclusion of such shares of Common Stock as part of the underwritten offering and, in such event, the stockholders elect to include the shares of Common Stock in the underwriting subject to an allocation among all stockholders of registration rights in the manner set forth in the Registration Rights Agreement, (2) the underwriter approves the inclusion of such shares of Common Stock in such registration statement, subject to customary underwriter cutbacks applicable to all stockholders of registration rights, (3) the stockholders shall enter into the underwriters’ form of lockup agreement as and to the extent requested by the underwriters, which may require that all of the shares of Common Stock held by the stockholders not be sold or otherwise transferred without the consent of the underwriters for a period not to exceed 180 days from the closing of the offering contemplated by the registration statement, and (4) if all of the shares of Common Stock of the stockholders cannot be so included due to certain comments from the SEC, then the Company may reduce the number of each stockholders’ shares of Common Stock covered by such registration statement to the maximum number which would enable the Company to conduct such offering in accordance with the provisions of Rule 415.
 
26

 
The Registration Rights Agreement contains a cut-back provision, whereby, in the event all of the all of the shares of Common Stock held by the stockholders cannot be included in a registration statement due to certain comments by the SEC or underwriter cutbacks, then the Company, unless otherwise prohibited by the SEC, shall cause the shares of Common Stock of the stockholders to be included in such registration statement to be reduced pro rata based on the number of shares of Common Stock held by all holders of registration rights.
 
The registration rights afforded to the stockholders shall terminate on the earliest date when all shares of Common Stock of the stockholders either: (i) have been publicly sold by the stockholders pursuant to a registration statement, (ii) have been covered by an effective registration statement which has been effective for an aggregate period of twelve (12) months (whether or not consecutive), or (iii) may be sold by the stockholders pursuant to Rule 144(k), or Rule 144 without regard to the volume limitations for sales as provided in that regulation, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent and the affected stockholders .
 
Each stockholder shall also indemnify the Company, each of its directors, each of its officers who signs the Registration Statement and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act against damages arising out of or based upon: (i) such stockholder’s provision of any untrue or alleged untrue statement of a material fact to be contained in any registration statement or prospectus or in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction, or arising out of or relating to any such stockholder’s omission or alleged omission of a material fact required to be stated therein or necessary to make the statements contained in such registration statement or prospectus not misleading or (ii) such stockholder’s violation or alleged violation by the Company of the Securities Act or the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the shares of Common Stock pursuant to a registration statement or (iii) such stockholder’s violation of the Registration Rights Agreement.

Registration Rights Granted to Other Stockholders

On September 14, 2007, the Company offered certain registration rights to the following stockholders of the Company, pursuant to terms and conditions substantially similar to those set forth in the form of registration rights agreement, a copy of which is attached hereto as Exhibit 10.7 (“Other Registration Rights Agreements”).

Stockholder
 
Number of Shares Subject to Registration
Rights (on a post-reverse split basis)
 
Halliburton Investor Relations
     
49,819
 
Feldman Weinstein & Smith, LLP
   
21,267
 
Kevin R. Keating
   
86,654
 
Garisch Financial, Inc.
   
86,654
 
Dennis Depenbusch
   
20,000
 
 
The Other Registration Rights Agreements provide the stockholders with “piggyback” registration rights such that at any time there is not an effective registration statement covering the shares of Common Stock, and the Company files a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then the Company is required to send written notice to the stockholders of such intended filings at least twenty (20) days prior thereto and is required to automatically include in such registration statement all shares of Common Stock held by the stockholders for resale and offer on a continuous basis pursuant to Rule 415; provided, however, that (i) if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company determines for any reason not to proceed with such registration, the Company will be relieved of its obligation to register any shares of Common Stock in connection with such registration, (ii) in case of a determination by the Company to delay registration of its securities, the Company will be permitted to delay the registration of shares of Common Stock for the same period as the delay in registering such other securities, (iii) each stockholder is subject to confidentiality obligations with respect to any information gained in this process or any other material non-public information he, she or it obtains, (iv) each stockholder is subject to all applicable laws relating to insider trading or similar restrictions; and (v) if all of the shares of Common Stock of the stockholders cannot be so included due to certain comments from the SEC, then the Company may reduce the number of each stockholders’ shares of Common Stock covered by such registration statement to the maximum number which would enable the Company to conduct such offering in accordance with the provisions of Rule 415.  

27

 
The stockholders shall be entitled to include all shares of Common Stock for resale in the registration statement filed by the Company in connection with a public offering of equity securities by the Company, pursuant to Rule 415, so long as (1) such shares shall not be included as part of the underwritten offering of primary shares by the Company, unless the Company and underwriter agree to allow the inclusion of such shares of Common Stock as part of the underwritten offering and, in such event, the stockholders elect to include the shares of Common Stock in the underwriting subject to an allocation among all stockholders of registration rights in the manner set forth in the Other Registration Rights Agreements, (2) the underwriter approves the inclusion of such shares of Common Stock in such registration statement, subject to customary underwriter cutbacks applicable to all stockholders of registration rights, (3) the stockholders shall enter into the underwriters’ form of lockup agreement as and to the extent requested by the underwriters, which may require that all of the shares of Common Stock held by the stockholders not be sold or otherwise transferred without the consent of the underwriters for a period not to exceed 180 days from the closing of the offering contemplated by the registration statement, and (4) if all of the shares of Common Stock of the stockholders cannot be so included due to certain comments from the SEC, then the Company may reduce the number of each stockholders’ shares of Common Stock covered by such registration statement to the maximum number which would enable the Company to conduct such offering in accordance with the provisions of Rule 415.
 
The Other Registration Rights Agreements contain a cut-back provision, whereby, in the event all of the all of the shares of Common Stock held by the stockholders cannot be included in a registration statement due to certain comments by the SEC or underwriter cutbacks, then the Company, unless otherwise prohibited by the SEC, shall cause the shares of Common Stock of the stockholders to be included in such registration statement to be reduced pro rata based on the number of shares of Common Stock held by all holders of registration rights.
 
The registration rights afforded to the stockholders shall terminate on the earliest date when all shares of Common Stock of the stockholders either: (i) have been publicly sold by the stockholders pursuant to a registration statement, (ii) have been covered by an effective registration statement which has been effective for an aggregate period of twelve (12) months (whether or not consecutive), or (iii) may be sold by the stockholders pursuant to Rule 144(k), or Rule 144 without regard to the volume limitations for sales as provided in that regulation, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent and the affected stockholders .
 
Each stockholder shall also indemnify the Company, each of its directors, each of its officers who signs the Registration Statement and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act against damages arising out of or based upon: (i) such stockholder’s provision of any untrue or alleged untrue statement of a material fact to be contained in any registration statement or prospectus or in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction, or arising out of or relating to any such stockholder’s omission or alleged omission of a material fact required to be stated therein or necessary to make the statements contained in such registration statement or prospectus not misleading or (ii) such stockholder’s violation or alleged violation by the Company of the Securities Act or the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the shares of Common Stock pursuant to a registration statement or (iii) such stockholder’s violation of the Other Registration Rights Agreement.
 
28

 
(b) Debt Securities

None.

(c) Warrants

As of October 1, 2005, there were issued and outstanding warrants to purchase 86,410 shares of the Company’s common stock, on a post-reverse split basis. During the fiscal year ended September 30, 2007, the Company entered into settlement agreements with certain creditors who held warrants to purchase 82,366 shares of common stock. As part of these settlement agreements, these warrants were cancelled. As of September 30, 2007, the Company had issued and outstanding warrants, on a post-reverse split basis, as follows:
 
Warrant Holder
 
Warrants
Outstanding
 
Exercise
Price
 
Expiry Date
 
               
John Sanderson (a former director)
   
710
 
$
31.25
   
3/26/2008
 
                     
Wilkinson Family Trust (an investor)
   
3,334
 
$
30.00
   
12/10/2009
 
                     
Balances, September 30, 2007
   
4,044
             

A copy of the above common stock purchase warrants are attached hereto as Exhibits 10.1 and 10.2.

(d) Other Securities to Be Registered

None.

PART II

Item 1. Market for Common Equity and Related Stockholder Matters

(a) Market Information

Our Common Stock began trading on the OTC Bulletin Board on June 28, 2004. Our common stock was quoted on the National Quotation Bureau’s Over-the-Counter Electronic Bulletin Board under the symbol “CYSL” through December 27, 2005, when we filed a Form 15 application with the SEC. Since that time we have traded on the Pink Sheets under the symbol “CYSL”. Effective September 25, 2007, our symbol of the Pink Sheets was changed to “CYSU” in connection with the Reverse Split.

The table below sets forth the reported high and low bid prices for the periods indicated. The bid prices shown reflect quotations between dealers, without adjustment for markups, markdowns or commissions, and may not represent actual transactions in our securities. All prices have been adjusted retroactively to give effect to the Reverse Split.
 
29

 
Per Share Common Stock Bid Prices by Quarter*

For the Fiscal Year Ended on September 30, 2006

 
 
High*
 
Low*
 
 
 
 
 
 
 
Quarter Ended December 31, 2005
 
$
100.00
 
$
2.00
 
Quarter Ended March 31, 2006
 
$
2.00
 
$
2.00
 
Quarter Ended June 30, 2006
 
$
6.00
 
$
2.00
 
Quarter Ended September 30, 2006
 
$
11.00
 
$
5.00
 
 
For the Fiscal Year Ended on September 30, 2007*

 
 
High*
 
Low*
 
 
 
 
 
 
 
Quarter Ended December 31, 2006
 
$
7.00
 
$
7.00
 
Quarter Ended March 31, 2007
 
$
7.00
 
$
7.00
 
Quarter Ended June 30, 2007
 
$
7.00
 
$
7.00
 
Quarter Ended September 30, 2007
 
$
10.00
 
$
1.01
 

* All prices have been adjusted retroactively to give effect to the 1-for-10 Reverse Split effective September 25, 2007. Prices obtained from www.bigcharts.com , a service of Market Watch, Inc.

(b) Holders

As of September 30, 2007, there were 85 record holders of our common stock and approximately 30 beneficial holders who held our common stock in street name.

(c) Dividends

The Company has not paid any cash dividends to date and does not anticipate or contemplate paying dividends in the foreseeable future. It is the present intention of management to utilize all available funds for the development of the Company's business.

(d) Penny Stock Regulations

Our securities are subject to the SEC's “penny stock” rules. The penny stock rules may affect the ability of owners of our shares to sell them. There may be a limited market for penny stocks due to the regulatory burdens on broker-dealers. The market among dealers may not be active. Investments in penny stocks often are unable to sell stock back to the dealer that sold them the stock. The mark-ups or commissions charged by the broker-dealers might be greater than any profit an investor may make. Because of large spreads that market makers quote, investors may be unable to sell the stock immediately back to the dealer at the same price the dealer sold the stock to the investor.
 
30

 
Our securities are also subject to the SEC’s rule that imposes special sales practice requirements upon broker-dealers that sell such securities to other than established customers or accredited investors. For purposes of the rule, the phrase “accredited investor” means, in general terms, institutions with assets exceeding $5,000,000 or individuals having net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, combined with a spouse’s income, exceeds $300,000). For transactions covered by the rule, 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.

Item 2. Legal Proceedings

Presently, there are not any material pending legal proceedings to which the Company is a party or as to which any of its property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.

Item 3. Changes in and Disagreements with Accountants

On October 18, 2007, the Company dismissed Hein & Associates, LLP at its accountants. There were no disagreements with Hein & Associates, LLP, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Hein & Associates, LLP, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its audit report for the fiscal year ended September 30, 2005. A copy of Hein’s letter to the Company dated as of October 18, 2007 is attached hereto as Exhibit 16.

On October 18, 2007, the Company engaged Comiskey & Company, P.C. as its accountants for the fiscal years ended September 30, 2006 and 2007. There are not and have not been any disagreements between the Company and Comiskey & Company. P.C., whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Comiskey & Company, P.C, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its audit report for the fiscal years ended September 30, 2006 and 2007.

Item 4. Recent Sales of Unregistered Securities

On September 12, 2007, the Company completed the sale of 1,572,770 shares of Series A Preferred Stock to KIG Investors for a purchase price of $157,277. The shares of Series A Preferred Stock were automatically convertible into the Company’s common stock at such time as the Company completed a 1-for-10 reverse stock split (“Reverse Split”). On September 25, 2007, the Company completed a 1-for-10 reverse stock split of its outstanding common stock. As a result of the Reverse Split, the Series A Preferred Stock held by KIG Investors were automatically converted into 2,562,015 shares of common stock, on a post-reverse split basis.

On September 14, 2007, the Company issued Feldman Weinstein & Smith, LLP (“FWS”), former legal counsel to the Company, and Halliburton Investor Relations (“HIR”), the Company’s former investor relation firm, an aggregate of 71,086 shares of common stock, on a post-reverse split basis, valued at $7,109 or approximately $0.10 per share, in satisfaction of accrued liabilities totaling $73,260, resulting in income from discharge of indebtedness of $66,151 being recorded.
 
On September 14, 2007, the Company also entered into an agreement with Laurus Master Fund, Ltd. (“Laurus”), the Company’s secured creditor, for the issuance of common stock in complete settlement of amounts owed to it for certain loans and accrued interest. Pursuant to this equity settlement, the Company issued 1,083,172 shares of common stock, on a post-reverse split basis, valued at $108,317 or approximately $0.10 per share, in satisfaction of principal under notes of $820,024 and accrued interest of $121,095, resulting in income from discharge of indebtedness of $832,802 being recorded.
 
31

 
On September 14, 2007, the Company issued Dennis Depenbusch 20,000 shares of the Company’s common stock, on a post-reverse split basis, valued at $2,000 for consulting services provided by Mr. Depenbusch in connection with the reorganization described in Part I, Item 1(b) above.
 
On September 14, 2007, the Company issued Kevin R. Keating 86,654 shares of the Company’s common stock, on a post-reverse split basis, valued at $8,665 for consulting services provided by Mr. Keating.

On September 14, 2007, the Company issued Garisch Financial, Inc. 86,654 shares of the Company’s common stock, on a post-reverse split basis, valued at $8,665 for consulting services provided by Garisch Financial, Inc. A copy of the Consulting Agreement between Garisch Financial, Inc. and the Company is attached hereto as Exhibit 10.11.

In consideration of the above stock issuances, the Company granted certain registration rights to the holders thereof. See Part I, Item 8(a) for a discussion of the registration rights granted in connection with the above stock issuances.
 
In connection with the above stock issuance, we did not pay any underwriting discounts or commissions. None of the sales of securities described or referred to above was registered under the Securities Act. Each of the purchasers fell into one or more of the categories that follow: an existing shareholder, a creditor, a current or former officer or director, a service provider, or an accredited investor with whom we or an affiliate of ours had a prior business relationship. As a result, no general solicitation or advertising was used in connection with the sales. In making the sales without registration under the Securities Act, we relied upon one or more of the exemptions from registration including those contained in Sections 4(2) of the Securities Act. The purchasers represented in writing that they acquired the securities for their own accounts. A legend was placed on the stock certificates stating that the securities have not been registered under the Securities Act and cannot be sold or otherwise transferred without an effective registration or an exemption therefrom.

Item 5. Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses including attorneys' fees, judgments, fines and amounts paid in settlement in connection with various actions, suits or proceedings, whether civil, criminal, administrative or investigative other than an action by or in the right of the corporation, a derivative action, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, if they had no reasonable cause to believe their conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification only extends to expenses including attorneys' fees incurred in connection with the defense or settlement of such actions, and the statute requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to the corporation. The statute provides that it is not exclusive of other indemnification that may be granted by a corporation's certificate of incorporation, bylaws, agreement, a vote of stockholders or disinterested directors or otherwise.

The Company’s Certificate of Incorporation provides that it will indemnify and hold harmless, to the fullest extent permitted by Section 145 of the Delaware General Corporation Law, as amended from time to time, each person that such section grants us the power to indemnify.
 
The Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability for:
 
• any breach of the director's duty of loyalty to the corporation or its stockholders;
 
32

 
• acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
• payments of unlawful dividends or unlawful stock repurchases or redemptions; or
• any transaction from which the director derived an improper personal benefit.
 
        The Company’s Certificate of Incorporation provides that, to the fullest extent permitted by applicable law, none of our directors will be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of this provision will be prospective only and will not adversely affect any limitation, right or protection of a director of our company existing at the time of such repeal or modification.
 
33


PART F/S

INDEX TO FINANCIAL STATEMENTS
 
Report of Independent Registered Public Accounting Firm
 
F-2
     
Balance Shee t - As of September 30, 2007
 
F-3
     
Statements of Operations - For the Years Ended September 30, 2007 and 2006
 
F-4
     
Statements of Changes in Stockholders’ Equity (Deficit) - For the Years Ended September 30, 2007 and 2006
 
F-5
     
Statements of Cash Flows - For the Years Ended September 30, 2007 and 2006
 
F-6
     
Notes to Financial Statements
 
F-7
 
F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Shareholders
Catalyst Lighting Group, Inc.
Vero Beach, Florida

We have audited the accompanying balance sheet of Catalyst Lighting Group, Inc. as of September 30, 2007, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years ended September 30, 2007 and 2006. 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 audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Catalyst Lighting Group, Inc. as of September 30, 2007 and the results of their operations and their cash flows for the years ended September 30, 2007 and 2006 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 recurring losses from operations. This raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Denver, Colorado
November 26, 2007

/s/ Comiskey & Company
PROFESSIONAL CORPORATION

F-2

 
CATALYST LIGHTING GROUP, INC.

BALANCE SHEET

SEPTEMBER 30, 2007

ASSETS
     
Current Assets :
     
Cash
 
$
76,696
 
Prepaid expenses and other
   
 
Total current assets
   
76,696
 
         
Other Assets
   
 
         
Total Assets
 
$
76,696
 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY
       
         
Current Liabilities :
       
Accounts payable and accrued expenses
 
$
8,363
 
         
Total current liabilities
   
8,363
 
         
Stockholders’ Equity :
       
Preferred stock – $.0001 par value; authorized 10,000,000 shares, none issued
   
 
Common stock – $.0001 par value; authorized 200,000,000 shares, 4,331,131 shares issued and outstanding
   
433
 
Additional paid-in capital
   
4,150,986
 
Accumulated deficit
   
(4,083,086
)
Total stockholders’ equity
   
68,333
 
         
Total Liabilities and Stockholders’ Equity
 
$
76,696
 
 
The accompanying notes are an integral part of these financial statements.
 
F-3

 
CATALYST LIGHTING GROUP, INC.

STATEMENTS OF OPERATIONS

   
For the Years Ended
 
   
September 30,
 
   
2007
 
2006
 
           
Revenue
 
$
-
 
$
-
 
               
General, Selling and Administrative Expenses  
   
118,450
   
381,602
 
               
Loss From Operations
   
(118,450
)
 
(381,602
)
               
Interest Expense
   
(79,678
)
 
(246,607
)
Income on Discharge of Indebtedness
   
1,059,768
   
-
 
               
Income (Loss) from operations before income tax
   
861,640
   
(628,209
)
               
Income tax Expense (Benefit)
   
-
   
-
 
               
Income (Loss) from continuing operations
   
861,640
   
(628,209
)
               
Loss From Discontinued Operations (net of tax)
   
-
   
(2,149,123
)
               
Gain on Disposition of Subsidiary (net of tax)
   
-
   
2,215,427
 
               
Net Earnings from Discontinued Operations
   
-
   
66,304
 
               
Net Income (Loss)
 
$
861,640
 
$
(561,905
)
               
Basic and Diluted Net Income (Loss) Per Common Share :
             
Continuing Operations
 
$
1.70
 
$
(1.50
)
Discontinued Operations
 
$
-
 
$
0.16
 
Net Income (Loss)
 
$
1.70
 
$
(1.34
)
               
Weighted Average Number of Shares Outstanding :
             
Basic
   
506,322
   
419,065
 
Diluted
   
506,322
   
419,065
 
 
*after giving retroactive effect to 1-for-10 reverse stock split which was completed September 25, 2007.
 
The accompanying notes are an integral part of these financial statements.
 
F-4

 
CATALYST LIGHTING GROUP, INC.

STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE YEARS ENDED SEPTEMBER 30, 2007 AND 2006

   
Preferred Stock
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Stockholders’
Equity
(Deficit)
 
   
Shares
 
Amount
 
Shares
 
Amount
 
                               
Balance , October 1, 2005
   
 
$
   
421,550
 
$
42
 
$
3,859,344
 
$
(4,382,821
)
$
(523,435
)
                                             
Net income (loss)
   
   
   
   
         
(561,905
)
 
(561,905
)
                                             
Balance , September 30, 2006
   
   
   
421,550
   
42
   
3,859,344
   
(4,944,726
)
 
(1,085,340
)
                                             
Preferred stock issued for cash
   
157,277
   
157,277
   
   
   
   
   
157,277
 
                                             
Common stock issued for payment of debt
   
   
   
1,154,258
   
115
   
115,310
   
   
115,425
 
                                             
Common stock issued for services
   
   
   
193,308
   
20
   
19,311
   
   
19,331
 
                                             
Common stock issued on conversion of preferred stock
   
(157,277
)
 
(157,277
)
 
2,562,015
   
256
   
157,021
   
   
 
                                             
Net income (loss)
   
   
   
   
   
   
861,640
   
861,640
 
                                             
Balance , September 30, 2007
   
 
$
   
4,331,131
 
$
433
 
$
4,150,986
 
$
(4,083,086
)
$
68,333
 
 
*after giving retroactive effect to 1-for-10 reverse stock split and the reduction in the par value of common stock from $.01 to $.0001 which was completed September 25, 2007.
 
The accompanying notes are an integral part of these financial statements.
 
F-5

 
CATALYST LIGHTING GROUP, INC.

STATEMENTS OF CASH FLOWS
 
   
For the Years Ended
September 30,
 
   
2007
 
2006
 
Cash Flows from Operating Activities :
             
Net income (loss)
 
$
861,640
 
$
(561,905
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
             
Equity in (income) loss of former subsidiary
   
-
   
2,149,123
 
(Income) on discharge of intercompany indebtedness
   
-
   
(636,944
)
Loss on disposition of subsidiary
   
-
   
3,427,354
 
(Income) on discharge of indebtedness attributable to former subsidiary
   
-
   
(5,005,837
)
(Income) on discharge of indebtedness
   
(1,059,768
)
 
-
 
Third party warrant issued for payment of debt
   
-
   
(729,630
)
Amortization of debt discount
   
51,960
   
144,251
 
Common stock issued for services
   
19,331
   
-
 
Change in operating assets and liabilities:
             
Intercompany receivable from (payable to) former subsidiary
   
-
   
1,529,448
 
Accounts payable and accrued liabilities
   
46,256
   
28,504
 
Net cash provided by (used in) operating activities
(80,581
)
344,364
Cash Flows from Investing Activities :
             
(Purchase) retirement of property and equipment
   
-
   
-
 
Net cash provided by (used in) investing activities
   
-
   
-
 
Cash Flows from Financing Activities :
             
Net proceeds from (payments on) debt
   
-
   
(344,364
)
Preferred stock issuance
   
157,277
   
-
 
Net cash provided by (used in) financing activities
   
157,277
   
(344,364
)
Net Change in Cash
   
76,696
-
Cash , at beginning of period
   
-
   
-
 
Cash , at end of period
 
$
76,696
 
$
-
 
Supplemental Disclosure of Cash Flow Information :
             
Cash paid during the year for interest
 
$
-
 
$
205,190
 
Schedule of Non-Cash Financing Activities :
             
Common stock issued in payment of debt
 
$
115,425
 
$
-
 
Common stock issued on conversion of preferred stock
 
$
157,277
 
$
-
 
Third party warrant issued for payment of debt
 
$
-
 
$
729,630
 
 
The accompanying notes are an integral part of these financial statements.
 
F-6

 
CATALYST LIGHTING GROUP, INC.

NOTES TO FINANCIAL STATEMENTS
 
1.
Organization and Basis of Presentation :
 
Organization and Business
 
Catalyst Lighting Group, Inc. (“Company”) was incorporated in the State of Delaware on March 7, 2001. On August 27, 2003, the Company completed the reverse acquisition of Whitco Company, L.P. (“Whitco”). Whitco was a wholly owned subsidiary of the Company and was engaged in the manufacture and sale of area lighting poles to distributors throughout the United States of America.

The Company’s common stock was quoted on the Over-the-Counter Bulletin Board under the symbol CYSL through December 27, 2005, when it filed a Form 15 application with the SEC to withdrawal as a reporting company under U.S. securities laws. Since that time, the Company’s common stock has traded on the Pink Sheets under the symbol CYSL.

On March 15, 2006, Whitco voluntarily filed for protection under Chapter 11 of the U.S. bankruptcy laws. On April 25, 2006, the bankruptcy court approved a sale of Whitco’s assets (other than cash and accounts receivable) used in its area lighting pole business. The assets were sold free and clear of any liens and encumbrances to a third party purchaser pursuant to Section 363 of the U.S Bankruptcy Code. The purchaser issued a common stock purchase warrant to acquire shares of the purchaser’s common stock as consideration for the assets purchased (“Purchase Warrant”). See Note 3.

On May 16, 2006, Whitco filed a motion to convert its bankruptcy case to a Chapter 7 liquidation proceeding. This motion was granted by the bankruptcy court on July 13, 2006. In connection with the liquidation, the Purchase Warrant and Whitco’s cash and accounts receivable were assigned and distributed to Whitco’s secured creditor. As part of the Chapter 7 bankruptcy proceedings, no assets were available for distribution to unsecured creditors and, accordingly, these unsatisfied obligations were relieved as part of the liquidation in accordance with the provisions of Chapter 7 of U.S. bankruptcy laws. See Note 5.

Since Whitco’s liquidation in bankruptcy, the Company has had nominal assets and nominal business operations and its business strategy has been to investigate and, if such investigation warrants, acquire a target company or business seeking the perceived advantages of being a publicly held corporation. In furtherance of this business strategy, on July 25, 2006, the Company voluntarily filed for protection under Chapter 11 of the U.S. bankruptcy laws. The Company subsequently determined to withdraw from bankruptcy court protection and, on motion made by the U.S. trustee, the bankruptcy court ordered the case dismissed on January 9, 2007. Since the dismissal of the Company’s bankruptcy case, the Company has settled its outstanding liabilities with creditors and is now in a position to actively seek a target company (see Notes 4 and 5). In addition, effective February 22, 2007, the Company experienced a change in control and its management changed, pursuant to a Securities Purchase Agreement by and between the Company and KIG Investors I, LLC (“Investor”)(see Note 4).
 
F-7


CATALYST LIGHTING GROUP, INC.

NOTES TO FINANCIAL STATEMENTS
 
The Company’s principal business objective for the next 12 months and beyond such time will be to achieve long-term growth potential through a combination with a business rather than immediate, short-term earnings. The Company will not restrict its potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire any type of business.

Basis of Presentation
The accompanying financial statements include the accounts of the Company. The operations of Whitco, prior to the disposition of Whitco’s assets, are excluded from continuing operations.

Going Concern
Since inception, the Company and its former subsidiary have a cumulative net loss of $4,083,086. Since inception, the Company has also been dependent upon the receipt of capital investment or other financing to fund its operations. The Company currently has no source of operating revenue, and has only limited working capital with which to pursue its business plan, which contemplates the completion of a business combination with an operating company. The amount of capital required to sustain operations until the successful completion of a business combination is subject to future events and uncertainties. It may be necessary for the Company to secure additional working capital through loans or sales of common stock, and there can be no assurance that such funding will be available in the future. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

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 classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
2.
Summary of Accounting Policies :
 
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.

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 these estimates.
 
F-8


CATALYST LIGHTING GROUP, INC.
 
NOTES TO FINANCIAL STATEMENTS
 
Cash and 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, 2007.

Fair Value of Financial Instruments
The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The carrying amounts of accounts payable and accrued liabilities approximate fair value because of the short-term maturities of these instruments.

Stock Compensation for Services Rendered  
The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty's performance is complete or the date on which it is probable that performance will occur.

Earnings (Loss) per Share
Basic earnings per (loss) 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. Potentially dilutive securities for the years ended September 30, 2006 and 2007 would have been anti-dilutive for EPS calculations and therefore are not included.

Disposed Operations
The Company has adopted Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 modifies previous disclosures and requires additional disclosures for discontinued operations and the assets associated with discontinued operations. In connection with the bankruptcy sale of Whitco’s assets and Whitco’s subsequent liquidation in bankruptcy, the Company disposed of its existing area lighting pole business (see Note 3). The operations of Whitco, prior to the disposition of Whitco’s assets, are excluded from continuing operations.
 
F-9

 
CATALYST LIGHTING GROUP, INC.

NOTES TO FINANCIAL STATEMENTS
 
Recent Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”).  The purpose of SFAS 157 is to provide users of financial statements with better information about the extent to which fair value is used to measure recognized assets and liabilities, the inputs used to develop the measurements, and the effect of certain of the measurements on earnings for the period. SFAS No. 157 also provides guidance on the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. This changes the definition of fair value to be the price that would be received to sell an asset or paid to transfer a liability, an exit price, as opposed to the price that would be paid to acquire the asset or received to assume the liability, an entry price.  SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods with those fiscal years (e.g., January 1, 2008, for calendar year-end entities).

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115 (“FAS 159”). FAS 159 permits companies to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The provisions of FAS 159 will become effective as of the beginning of our 2009 fiscal year.

The adoption of these new Statements is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

3.
Sale of Subsidiary’s Assets in Bankruptcy :
 
On March 15, 2006, Whitco, the Company’s wholly owned operating subsidiary, voluntarily filed for protection under Chapter 11 of the U.S. bankruptcy laws. On April 25, 2006, the bankruptcy court approved a sale of Whitco’s assets (other than cash and accounts receivable) used in its area lighting pole business. The assets were sold free and clear of any liens and encumbrances to a third party purchaser pursuant to Section 363 of the U.S Bankruptcy Code. The purchaser issued the Purchase Warrant as consideration for the assets purchased. The Purchase Warrant was valued by the parties to the transaction at $1,500,000.
 
On May 16, 2006, Whitco filed a motion to convert its bankruptcy case to a Chapter 7 liquidation proceeding. This motion was granted by the bankruptcy court on July 13, 2006. In connection with the liquidation, the Purchase Warrant and Whitco’s cash and accounts receivable were assigned and distributed to Whitco’s secured creditor (see Note 5). As part of the Chapter 7 bankruptcy proceedings, no assets were available for distribution to unsecured creditors and, accordingly, these unsatisfied obligations were relieved as part of the liquidation in accordance with the provisions of Chapter 7 of U.S. bankruptcy laws.  
 
F-10

 
CATALYST LIGHTING GROUP, INC.

NOTES TO FINANCIAL STATEMENTS
 
This transaction has been accounted for as discontinued operations since the Company disposed of its entire area lighting pole business operations as a result of the bankruptcy sale.
 
The excess of the purchase price paid by the purchaser (including liabilities assumed) over the adjusted basis of the assets transferred by Whitco to the purchaser was recorded as a gain (loss) on disposal of assets and liabilities from the discontinued operations. The following is a composition of the purchase price paid and the assets transferred in connection with the bankruptcy sale of Whitco’s assets:
 
Consideration Paid by Purchaser:
         
           
Purchase warrant (at agreed value)
       
$
1,500,000
 
               
Adjusted Basis of Whitco Assets Transferred to Purchaser :
             
               
Inventory, net
   
1,399,299
       
Plant, property and equipment, net
   
95,033
       
               
Total Adjusted Basis of Transferred Assets
         
1,494,332
 
               
Gain on Sale of Whitco Assets
       
$
5,668
 

The gain (loss) on the disposition of Whitco includes certain Whitco indebtedness discharged as part of the liquidation in accordance with the provisions of Chapter 7 of U.S. bankruptcy laws and certain expense items related to the liquidation. The following is a composition of the foregoing:

Discharge of Whitco Indebtedness related to Liquidation :
     
       
Related party debt, current
 
$
250,000
 
Other debt, current
   
1,290,748
 
Accounts payable
   
2,833,383
 
Accrued liabilities
   
431,706
 
Long term debt
   
200,000
 
         
Income from Discharge of Indebtedness
   
5,005,837
 
         
Adjustments to Reconcile to Gain From Disposal of Subsidiary:
       
         
Adjustment for Cancellation of Intercompany Payable to Whitco
   
636,944
 
Book value of Whitco subsidiary after cancellation of debt
   
(3,427,354
)
         
Net Gain (Loss) on Whitco Liquidation
 
$
2,215,427
 
 
F-11

 
CATALYST LIGHTING GROUP, INC.
 
NOTES TO FINANCIAL STATEMENTS
 
4.
Change of Control Transaction; Creditor Settlements :
 
On August 22, 2007, the Company entered into a stock purchase agreement with the Investor pursuant to which the Investor purchased 1,572,770 shares of convertible preferred stock for a purchase price of $157,277, or $0.10 per share (“Preferred Stock Purchase”).
 
On August 23, 2007, in accordance with the terms of the stock purchase agreement, the existing officers and two of the Company’s directors resigned, and Kevin R. Keating, the sole remaining director, was appointed Chief Executive Officer, Chief Financial Officer, President, Secretary and Treasurer.

Kevin R. Keating is the father of Timothy J. Keating, the principal member of Keating Investments, LLC. Keating Investments, LLC is the managing member of the Investor. Timothy J. Keating is the manager of the Investor.

The Preferred Stock Purchase was completed on September 12, 2007. The preferred shares were automatically convertible into the Company’s common stock at such time as the Company completed a 1-for-10 reverse stock split (“Reverse Split”). The Reverse Split was completed on September 25, 2007, and the Investor was issued 2,562,015 shares of common stock, on a post-split basis, upon cancellation of the preferred stock. As of September 30, 2007, the Investor owns approximately 59% of the outstanding shares of common stock. The proceeds of the Preferred Stock Purchase were used to pay outstanding liabilities of the Company.

In connection with and as a condition of the closing of the Preferred Stock Purchase, the Company entered into agreements with a number of creditors for a cash settlement of amounts owed to them by the Company. Pursuant to these cash settlements, the Company paid an aggregate of $30,277 in complete satisfaction of $191,092 in accrued liabilities, resulting in income from the discharge of indebtedness of $160,815.

In connection with and as a condition of the closing of the Preferred Stock Purchase, the Company also entered into agreements with a number of creditors for the issuance of common stock in complete settlement of amounts owed to them for services rendered. Pursuant to these equity settlements, the Company issued an aggregate of 71,086 shares of common stock, on a post-split basis, valued at $7,109 or approximately $0.10 per share, in satisfaction of accrued liabilities totaling $73,260, resulting in income from discharge of indebtedness of $66,151 being recorded.

In connection with and as a condition of the closing of the Preferred Stock Purchase, the Company also entered into an agreement with the Company’s secured creditor for the issuance of common stock in complete settlement of amounts owed to it for certain loans and accrued interest. Pursuant to this equity settlement, the Company issued 1,083,172 shares of common stock, on a post-split basis, valued at $108,317 or approximately $0.10 per share, in satisfaction of principal under notes of $820,024 and accrued interest of $121,095, resulting in income from discharge of indebtedness of $832,802 being recorded. See Note 5.
 
F-12

 
CATALYST LIGHTING GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

In consideration of the above equity settlements, each creditor was granted piggy back registration rights for the shares of common stock received in the settlement.

Further, as part of the cash and equity settlements, any creditor holding warrants to purchase shares of the Company’s common stock agreed to the cancellation of such warrants. Accordingly, warrants to purchase 82,367 shares of common stock, on a post-split basis, were cancelled.
 
5.
Notes Payable :
 
Secured Notes
On September 30, 2004, the Company and Whitco entered into a financing arrangement with a secured creditor (the “Entity”) which included (1) a Secured Convertible Term Note in the principal amount of two million dollars (the “Term Note”) and (2) a Secured Revolving Note (the “Revolving Note”) and a Secured Convertible Minimum Borrowing Note (together with the Revolving Note, the “AR Notes”) in the aggregate principal amount of up to three million dollars

The Company and Whitco were jointly and severally liable under the AR Notes, and the Company was liable under the Term Note. The Term Note and AR Notes (collectively, the “Notes”) matured on September 30, 2007 and were collateralized by a first priority lien on inventory, accounts receivable, raw materials and other assets of the Company and Whitco and all of the Company’s ownership interests in Whitco. The Notes accrued interest at a rate per annum equal to the “prime rate” published in The Wall Street Journal from time to time, plus two percent (2%), but shall in no event be less than six percent (6%) per annum. Catalyst also granted registration rights with respect to all shares of Common Stock underlying the Notes and certain warrants issued to the Entity in connection with its financings.

In connection with the Whitco bankruptcy, as of March 31, 2006, the Entity and the Company agreed that certain Whitco accounts receivable collections and the assignment of the Purchase Warrant to the Entity would be applied against payment of the Notes balances as follows:
 
F-13

 
CATALYST LIGHTING GROUP, INC.

NOTES TO FINANCIAL STATEMENTS
 
Principal and Interest Balances :
         
Revolving Note – Principal Balance at March 14, 2006
 
$
920,421
       
Revolving Note – Accrued Interest at March 15, 2006
   
3,854
       
Minimum Borrowing Note – Principal Balance at March 14, 2006
   
997,000
       
Minimum Borrowing Note – Accrued Interest at March 15, 2006
   
3,947
       
Total Balance – Revolving Note and Minimum Borrowing Note
       
$
1,925,232
 
               
Collections, Payments and Charges :
             
Agreed Value of Purchase Warrant
  $
(1,500,000
)
     
Accounts Receivable Balance at March 15, 2006
   
(1,404,295
)
     
Agreed Uncollectible Accounts Receivable
   
300,000
       
Debtor-in-Possession Collections by Laurus
   
(85,556
)
     
Laurus Fees and Expenses
   
35,000
       
Total Collections, Payments and Charges
        $
(2,654,851
)
               
Term Note Balance :
             
Excess Payments and Collections Applied to Term Note
        $
(729,619
)
Term Note – Principal Balance at March 14, 2006
         
1,549,643
 
Term Note – Adjusted Principal Balance
       
$
820,024
 
Term Note – Accrued Interest at March 15, 2006
         
6,134
 
Balance – Term Note Plus Accrued Interest
       
$
826,158
 

As of September 30, 2006, the balance of the Term Note was $768,064, net of debt discount of $51,960. As of September 30, 2006, the Term Note had accrued interest of $41,417.
 
In connection with and as a condition of the closing of the Preferred Stock Purchase, the Company entered into an agreement with the Entity for the issuance of common stock in complete settlement of amounts owed to it under the Term Note including accrued interest. Pursuant to this equity settlement, the Company issued to the Entity 1,083,172 shares of common stock, on a post-split basis, valued at $108,317 or approximately $0.10 per share, in satisfaction of principal under the Term Note of $820,024 and accrued interest of $121,095, resulting in income from discharge of indebtedness of $832,802 being recorded.
 
F-14

 
CATALYST LIGHTING GROUP, INC.

NOTES TO FINANCIAL STATEMENTS
 
Revolving Loan – Related Party
On August 22, 2007, the Company entered into a revolving loan agreement with Keating Investments, LLC (“Lender”). Pursuant to this agreement, t he Lender agreed to make advances to the Company from time to time at the request of the Company. The advances outstanding were not to exceed $30,000. The Company was required to repay the outstanding advances in full on or before October 22, 2007. The advances bear interest commencing September 22, 2007 at a rate of 6% per annum. The Lender made advances of $25,000 and $5,000 on August 27, 2007 and September 5, 2007, respectively. The advances were used for working capital purposes and to pay certain accrued liabilities and service providers. On September 19, 2007, these advances were repaid in full from the proceeds of the Preferred Stock Purchase. Keating Investments, LLC is the managing member of the Investor.
 
6.
Stockholders’ Equity :
 
Option Plans
As of October 1, 2005, there were issued and outstanding options to purchase 9,828 shares of the Company’s common stock, on a post-split basis, and there were 140,172 options available for issuance under the 2003 Stock Option Plan. During the fiscal year ended September 30, 2006, the options to purchase 9,828 shares of common stock under the 2003 Stock Option Plan were cancelled. On September 13, 2007, following the closing of the Preferred Stock Purchase, the 2003 Stock Option Plan was terminated by the Company’s Board of Directors.
 
Stock Purchase Warrants
As of October 1, 2005, there were issued and outstanding warrants to purchase 86,410 shares of the Company’s common stock, on a post-split basis. During the fiscal year ended September 30, 2007, the Company entered into settlement agreements with certain creditors who held warrants to purchase 82,366 shares of common stock. As part of these settlement agreements, these warrants were cancelled. As of September 30, 2007, the Company had issued and outstanding warrants, on a post-split basis, as follows:
 
Warrant Holder
 
Warrants Outstanding
 
Exercise
Price
 
Expiry Date
 
               
Former Director
   
710
 
$
31.25
   
3/26/2008
 
                     
Investor
   
3,334
 
$
30.00
   
12/10/2009
 
                     
Balances, September 30, 2007
   
4,044
             
 
F-15

 
CATALYST LIGHTING GROUP, INC.

NOTES TO FINANCIAL STATEMENTS
 
Preferred Stock
On August 27, 2007, the Company’s Board of Directors designated 1,600,000 shares of preferred stock as Series A Convertible Preferred Stock (“Preferred Stock”). Each share of Preferred Stock was automatically convertible into 16.28982 shares of fully paid and non-assessable common stock upon the Company’s completion of a reverse stock split. The holders of Preferred Stock were entitled to vote the number of shares of common stock they were entitled to upon conversion on all matters presented to a vote of the common stockholders.

On August 22, 2007, the Company entered into a stock purchase agreement with the Investor pursuant to which the Investor purchased 1,572,770 shares of Preferred Stock for a purchase price of $157,277 (“Preferred Stock Purchase”). The Preferred Stock Purchase was completed on September 12, 2007. The shares of Preferred Stock were automatically convertible into the Company’s common stock at such time as the Company completed a 1-for-10 reverse stock split (“Reverse Split”). The Reverse Split was completed on September 25, 2007, and the Investor was issued 2,562,015 shares of common stock, on a post-split basis, upon cancellation of the Preferred Stock.

Reverse Stock Split
On September 25, 2007, the Company completed a 1-for-10 reverse stock split of its outstanding common stock. The Reverse Split provided for the round up of fractional shares and the special treatment of certain shareholders as follows:
 
a.   shareholders holding less than 100 shares of common stock as of the record date will not be affected by the Reverse Split and will hold the same number of shares both before and after the Reverse Split;
 
b.   shareholders holding 1,000 or fewer shares of common stock, but at least 100 shares of common stock as of the record date will hold 100 shares of common stock following the Reverse Split; and

c. all fractional shares as a result of the Reverse Split will be rounded up.

In connection with the Reverse Split, effective September 25, 2007, the Company also amended its certificate of incorporation to reduce the par value of its common stock and preferred stock from $0.01 to $0.0001 per share and to increase the number of authorized shares of common stock from 40,000,000 to 200,000,000 shares.

As of September 30, 2007, after giving effect to the Reverse Split, there were 4,331,131 shares of common stock, par value $0.0001 per share, issued and outstanding. Except as otherwise noted, all references to shares of the Company’s common stock shall refer to the shares of common stock after giving effect to the Reverse Split and the reduction of the par value per share.

F-16

 
CATALYST LIGHTING GROUP, INC.

NOTES TO FINANCIAL STATEMENTS
 
Common Stock
Pursuant to certain settlement agreements, on September 14, 2007, the Company issued an aggregate of 71,086 shares of common stock, on a post-split basis, valued at $7,109 or approximately $0.10 per share, in satisfaction of accrued liabilities owed to certain service providers totaling $73,260, resulting in income from discharge of indebtedness of $66,151 being recorded.
 
Pursuant to a settlement agreement with Entity, on September 14, 2007, the Company issued 1,083,172 shares of common stock, on a post-split basis, valued at $108,317 or approximately $0.10 per share, in satisfaction of principal under notes of $820,024 and accrued interest of $121,095, resulting in income from discharge of indebtedness of $832,802 being recorded.

On September 14, 2007, the Company issued 86,654 shares of its common stock, on a post-split basis, to Kevin R. Keating, the sole officer and director of the Company, for services rendered to the Company valued at $8,665, or $0.10 per share.

On September 14, 2007, the Company issued 86,654 shares of its common stock, on a post-split basis, to Garisch Financial, Inc. for consulting services rendered to the Company valued at $8,665, or $0.10 per share.

On September 14, 2007, the Company issued 20,000 shares of its common stock, on a post-split basis, to a former officer and director of the Company, for consulting services rendered to the Company valued at $2,000, or $0.10 per share.

On September 25, 2007, following the completion of the Reverse Split, the Company automatically converted its outstanding Preferred Stock and issued the Investor 2,562,015 shares of common stock, on a post-split basis.

All of the foregoing shares of common stock issued by the Company were issued under an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended (“Securities Act”). As such, the shares of common stock so issued are restricted shares, and the holder thereof may not sell, transfer or otherwise dispose of such shares without registration under the Securities Act or an exemption therefrom. The Company has granted piggyback registration rights to each of the recipients of the foregoing stock issuances with respect to the above shares. In addition, demand registration rights have been granted to the Investor and the Entity.

F-17

 
CATALYST LIGHTING GROUP, INC.

NOTES TO FINANCIAL STATEMENTS
 
7.
Related Party Transactions :
 
On September 14, 2007, the Company issued 86,654 shares of its common stock, on a post-split basis, to Kevin R. Keating, the sole officer and director of the Company, for services rendered to the Company valued at $8,665, or $0.10 per share.

On September 14, 2007, the Company issued 20,000 shares of its common stock, on a post-split basis, to a former officer and director of the Company, for consulting services rendered to the Company valued at $2,000, or $0.10 per share.

On August 22, 2007, the Company entered into a revolving loan agreement with Keating Investments, LLC (“Lender”). Pursuant to this agreement, t he Lender agreed to make advances to the Company from time to time at the request of the Company. The advances outstanding were not to exceed $30,000. The Company was required to repay the outstanding advances in full on or before October 22, 2007. The advances bear interest commencing September 22, 2007 at a rate of 6% per annum. The Lender made advances of $25,000 and $5,000 on August 27, 2007 and September 5, 2007, respectively. The advances were used for working capital purposes and to pay certain accrued liabilities and service providers. On September 19, 2007, these advances were repaid in full from the proceeds of the Preferred Stock Purchase. Keating Investments, LLC is the managing member of the Investor.

During the fiscal years ended September 30, 2006 and 2007, a former officer and director of the Company made cost advances on behalf of the Company totaling $5,015. These advances were repaid by the Company from the proceeds of the Preferred Stock Purchase.
 
F-18

 
CATALYST LIGHTING GROUP, INC.

NOTES TO FINANCIAL STATEMENTS
 
8.
Income Taxes :
 
The following is a reconciliation between the federal income tax benefit computed at the statutory federal income tax rate and actual income tax benefit (in thousands):

   
Year Ended
September 30,
2007
 
Year Ended
September 30,
2006
 
           
Federal income tax expense (benefit) at statutory rate
 
$
295
 
$
(191
)
               
State income taxes, net of federal income tax effect
   
-
   
-
 
               
Valuation allowance
   
(295
)
 
191
 
               
Total income tax benefit
 
$
-
 
$
-
 

At September 30, 2007, the Company had a net operating loss carryforward for federal and state income tax purposes of approximately $6.8 million available to offset future taxable income through 2027. This operating loss is limited under the change of control provisions of Section 382.

Prior net operating loss carry forwards were reduced effective April 24, 2006 principally as a result of cancellation of debt in the Chapter 11 proceedings.

A valuation allowance of $2,455,000 was established at September 30, 2007 to offset the benefit from the net operating loss carryforward to the extent it is more likely than not, based upon available evidence, that the recorded value will not be realized. Realization is dependent on the existence of sufficient taxable income within the carryforward period. In August 2007, upon the issuance of common shares in settlement of liabilities, the Company underwent a change of control pursuant to Section 382 of the internal revenue code. Net operating losses prior to the change of control are limited in post change periods under Section 382. Cancellation of indebtedness income subsequent to the change in control has been excluded from taxable income due to the insolvency of the company, and has the effect of reducing the pre-change net operating loss carryforward.

F-19

 
CATALYST LIGHTING GROUP, INC.

NOTES TO FINANCIAL STATEMENTS
 
9.
Subsequent Events :
 
Effective October 1, 2007, the Company entered into a management agreement (“Management Agreement”) with Vero Management, L.L.C., a Delaware limited liability company (“Vero”) under which Vero had agreed to provide a broad range of managerial and administrative services to the Company including, but not limited to, assistance in the preparation and maintenance of the Company’s financial books and records, the filing of various reports with the appropriate regulatory agencies as are required by State and Federal rules and regulations, the administration of matters relating to the Company’s shareholders including responding to various information requests from shareholders as well as the preparation and distribution to shareholders of relevant Company materials, and to provide office space, corporate identity, telephone and fax services, mailing, postage and courier services for a fixed fee of $1,000 per month, for an initial period of twelve months. At the end of the initial twelve month term, the agreement will continue to remain in effect until terminated in writing by either party. Kevin R. Keating, the sole officer and director of the Company, is the sole owner and manager of Vero.
 
F-20

 
PART III

Item 1. Index to Exhibits

 
Description
     
2.1
 
Certificate of Ownership and Merger, as filed with the Delaware Secretary of State on September 23, 2003
3.1
 
Certificate of Incorporation, as filed with the Delaware Secretary of State on March 7, 2001
3.2
 
Certificate of Designation of Series A Convertible Preferred Stock, as filed with the Delaware Secretary of State on August 27, 2007
3.3
 
Certificate of Amendment of Certificate of Incorporation, as filed with the Delaware Secretary of State on September, 19, 2007
3.4
 
By-Laws, as amended
10.1
 
Common Stock Purchase Warrant Issued to John Sanderson dated May 26, 2004
10.2
 
Common Stock Purchase Warrant Issued to Wilkinson Family Trust dated December 10, 2004
10.3
 
Securities Purchase Agreement between KIG Investors I, LLC and the Company dated August 22, 2007
10.4
 
Registration Rights Agreement between KIG Investors I, LLC and the Company dated September 12, 2007
10.5
 
Settlement and Release Agreement between Feldman Weinstein & Smith, LLP and the Company dated August 21, 2007
10.6
 
Settlement and Release Agreement between Halliburton Investor Relations and the Company dated August 13, 2007
10.7
 
Form of Registration Rights Agreement between certain Other Stockholders and the Company dated September 14, 2007
10.8
 
Settlement and Release Agreement between Laurus Master Fund, Ltd. and the Company dated August 22, 2007
10.9
 
Registration Rights Agreement between Laurus Master Fund, Ltd. and the Company dated September 14, 2007
10.10
 
Revolving Loan Agreement between Keating Investments, LLC and the Company dated August 22, 2007
 
Consulting Agreement between Garisch Financial, Inc. and the Company dated September 13, 2007
10.12
 
Agreement between the Company and Vero Management, LLC, dated as of October 1, 2007
16   Change of Registered Accountant Center

34

 
SIGNATURES

In accordance with Section 12 of the Securities Exchange Act of 1934, the registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Date: December 6, 2007
Catalyst Lighting Group, Inc.
     
     
  By:
/s/ Kevin R. Keating
  Name: Kevin R. Keating
  Title: Chief Executive Officer

35

 

 
 

 
 

 
 

 
 
 
 

 


 
 
 

 
 

 
 
 

 
 

 
 
 

 
 

 
 
 

 
 

 
 
 

 
 
 
 

 


 
 
 

 
 
 
BY-LAWS

OF

CATALYST LIGHTING GROUP, INC.

A Delaware Corporation

ARTICLE I - OFFICES

The registered office of the Corporation in the State of Delaware shall be located in the City and State designated in the Certificate of Incorporation. The Corporation may also maintain offices at such other places within or without the State of Delaware as the Board of Directors may, from time to time, determine.

ARTICLE II - MEETING OF SHAREHOLDERS

Section 1 - Annual Meetings:
 
The annual meeting of the shareholders of the Corporation shall be held at the time fixed, from time to time, by the Directors, at the time fixed from time to time by the Directors.

Section 2 - Special Meetings:
 
Special meetings of the shareholders may be called by the Board of Directors or such person or persons authorized by the Board of Directors and shall be held within or without the State of Delaware.

Section 3 - Court-ordered meeting:
 
The Court of Chancery in this State where the Corporation's principal office is located, or where the Corporation's registered office is located if its principal office is not located in this state, may after notice to the Corporation, order a meeting to be held on application of any Director or shareholder of the Corporation entitled to vote in an annual meeting if an annual meeting has not been held within any thirteen month period, if there is a failure by the Corporation to hold an annual meeting for a period of thirty days after the date designated therefor, or if no date has been designated, for a period of thirteen months after the organization of the Corporation or after its last annual meeting. The Court may fix the time and place of the meeting, determine the shares entitled to participate in the meeting, specify a record date for determining shareholders entitled to notice of and to vote at the meeting, prescribe the form and content of the meeting notice, and enter other orders as may be appropriate.

Section 4 - Place of Meetings:
 
Meetings of shareholders shall be held at the registered office of the Corporation, or at such other places within or without the State of Delaware as the Directors may from time to time fix. If no designation is made, the meeting shall be held at the Corporation's registered office in the state of Delaware.


 
Section 5 - Notice of Meetings:
 
(a) Written or printed notice of each meeting of shareholders, whether annual or special, stating the time when and place where it is to be held, shall be served either personally or by first class mail, by or at the direction of the president, the secretary, or the officer or the person calling the meeting, not less than ten or more than sixty days before the date of the meeting, unless the lapse of the prescribed time shall have been waived before or after the taking of such action, upon each shareholder of record entitled to vote at such meeting, and to any other shareholder to whom the giving of notice may be required by law. Notice of a special meeting shall also state the business to be transacted or the purpose or purposes for which the meeting is called, and shall indicate that it is being issued by, or at the direction of, the person or persons calling the meeting. If, at any meeting, action is proposed to be taken that would, if taken, entitle shareholders to dissent and receive payment for their shares pursuant to the Delaware General Corporation Law, the notice of such meeting shall include a statement of that purpose and to that effect. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the shareholder as it appears on the share transfer records of the Corporation.

Section 6 - Shareholders' List:
 
(a) After fixing a record date for a meeting, the officer who has charge of the stock ledger of the Corporation, shall prepare an alphabetical list of the names of all its shareholders entitled to notice of the meeting, arranged by voting group with the address of, and the number, class, and series, if any, of shares held by each shareholder. The shareholders' list must be available for inspection by any shareholder for a period of ten days before the meeting or such shorter time as exists between the record date and the meeting and continuing through the meeting at the Corporation's principal office, at a place identified in the meeting notice in the city where the meeting will be held, or at the office of the Corporation's transfer agent or registrar. Any shareholder of the Corporation or the shareholder's agent or attorney is entitled on written demand to inspect the shareholders' list during regular business hours and at the shareholder's expense, during the period it is available for inspection.

(b) The Corporation shall make the shareholder's list available at the meeting of shareholders, and any shareholder or the shareholder's agent or attorney is entitled to inspect the list at any time during the meeting or any adjournment.

(c) Upon the willful neglect or refusal of the Directors to produce such a list at any meeting for the election of Directors, such Directors shall be ineligible for election for any office at such meeting.

(d) The stock ledger shall be the only evidence as to who are the shareholders entitled to examine the stock ledger, the list required by Section 219 of the Delaware General Corpora-tion Law or the books of the Corporation, or to vote in person or by proxy at any shareholders' meeting.

Section 7 - Quorum:

(a) Except as otherwise provide herein, or by law, or in the Certificate of Incorporation (such Articles and any amendments thereof being hereinafter collectively referred to as the "Certificate of Incorporation"), or for meetings ordered by the Court of Chancery called pursuant to Section 211 of the Delaware General Corporations Law, a quorum shall be present at all meetings of shareholders of the Corporation, if the holders of a majority of the shares entitled to vote on that matter are represented at the meeting in person or by proxy.
 
-2-

 
(b) The subsequent withdrawal of any shareholder from the meeting, after the commencement of a meeting, or the refusal of any shareholder represented in person or by proxy to vote, shall have no effect on the existence of a quorum, after a quorum has been established at such meeting.

(c) Despite the absence of a quorum at any meeting of shareholders, the shareholders present may adjourn the meeting.

Section 8 - Voting:
 
(a) Except as otherwise provided by law, the Certificate of Incorporation, or these Bylaws, any corporate action, other than the election of Directors, the affirmative vote of the majority of shares entitled to vote on that matter and represented either in person or by proxy at a meeting of shareholders at which a quorum is present shall be the act of the shareholders of the Corporation.

(b) Unless otherwise provided for in the Articles of Incorporation of this Corporation, directors will be elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present and each shareholder entitled to vote has the right to vote the number of shares owned by him for as many persons as there are Directors to be elected.

(c) Unless otherwise provided for in the Certificate of Incorporation of this Corporation, Directors will be elected by a plurality of the votes by the shares, present in person or by proxy, entitled to vote in the election at a meeting at which a quorum is present and each shareholder entitled to vote has the right to vote the number of shares owned by him/her for as may persons as there are Directors to be elected.

(d) Except as otherwise provided by statute, the Certificate of Incorporation, or these bylaws, at each meeting of shareholders, each shareholder of the Corporation entitled to vote thereat, shall be entitled to one vote for each share registered in his name on the books of the Corporation.

Section 9 - Proxies:
 
Each shareholder entitled to vote or to express consent or dissent without a meeting, may do so either in person or by proxy, so long as such proxy is executed in writing by the shareholder himself, or by his attorney-in-fact thereunto duly authorized in writing. Every proxy shall be revocable at will unless the proxy conspicuously states that it is irrevocable and the proxy is coupled with an interest. A telegram, telex, cablegram, or similar transmission by the shareholder, or a photographic, photostatic, facsimile, shall be treated as a valid proxy, and treated as a substitution of the original proxy, so long as such transmission is a complete reproduction executed by the shareholder. No proxy shall be valid after the expiration of three years from the date of its execution, unless otherwise provided in the proxy. Such instrument shall be exhibited to the Secretary at the meting and shall be filed with the records of the Corporation.
 
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Section 10 - Action Without a Meeting:
 
  Unless otherwise provided for in the Certificate of Incorporation of the Corporation, any action to be taken at any annual or special shareholders' meeting, may be taken without a meeting, without prior notice and without a vote if a written consent or consents is/are signed by the shareholders of the Corporation having not less than the minimum number of votes necessary to authorize or take such action at a meeting at which all shares entitled to vote thereat were present and voted is delivered by hand or by certified or registered mail, return receipt requested, to the Corporation to its registered office in the State of Delaware, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of shareholders' meetings are recorded.

Section 11 - Inspectors:
 
(a) The Corporation shall appoint one or more inspectors, and one or more alternate inspectors, to act at any shareholder' meeting and make a written report thereof, so long as such inspectors sign an oath to faithfully execute their duties with impartiality and to the best of their ability before such meeting. If no inspector or alternate is able to act at the shareholders meeting, the presiding officer shall appoint one or more inspectors to act at the meeting.

*(b) The inspector shall:

(i) ascertain the number of shares entitled to vote and the voting power of each such shareholder;

(ii) determine the shares represented at a meeting and the validity of proxies and ballots;

(iii) count all votes and ballots;

(iv) determine and retain for a reasonable time a disposition record of any challenges made to any of the inspectors' determinations; and

(v) certify the inspectors' determinations of the number of shares represented at the meeting and their count of all votes and ballots.

ARTICLE III - BOARD OF DIRECTORS
 
Section 1 - Number, Term, Election and Qualifications:
 
(a) The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, except as may be otherwise provided by law or in the Certificate of Incorporation. The number of directors which shall constitute the Board of Directors shall be not less than one (1) nor more than nine (9). The exact number of directors shall be fixed from time to time, within the limits specified in this Article III Section 1 or in the Certificate of Incorporation, by the Board of Directors. Directors need not be stockholders of the Corporation.
 
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(b) Except as may otherwise be provided herein or in the Certificate of Incorporation, the members of the Board of Directors of the Corporation shall be elected at the first annual shareholders' meeting and at each annual meeting thereafter, unless their terms are staggered in the Certificate of Incorporation of the Corporation or these Bylaws, by a majority of the votes cast at a meeting of shareholders, by the holders of shares entitled to vote in the election.

(c) The first Board of Directors shall hold office until the first annual meeting of shareholders and until their successors have been duly elected and qualified or until there is a decrease in the number of Directors. Thereinafter, Directors will be elected at the annual meeting of shareholders and shall hold office until the annual meeting of the shareholders next succeeding his election, or until his prior death, resignation or removal. Any Director may resign at any time upon written notice of such resignation to the Corporation.

Section 2 - Duties and Powers:
 
The Board of Directors shall be responsible for the control and management of the business and affairs, property and interests of the Corporation, and may exercise all powers of the Corporation, except such as those stated under Delaware state law, are in the Certificate of Incorporation or by these Bylaws, expressly conferred upon or reserved to the shareholders or any other person or persons named therein.

Section 3 - Regular Meetings; Notice:
 
(a) A regular meeting of the Board of Directors shall be held either within or without the State of Delaware at such time and at such place as the Board shall fix.

(b) No notice shall be required of any regular meeting of the Board of Directors and, if given, need not specify the purpose of the meeting; provided, however, that in case the Board of Directors shall fix or change the time or place of any regular meeting when such time and place was fixed before such change notice of such action shall be given to each Director who shall not have been present at the meeting at which such action was taken within the time limited, and in the manner set forth in these Bylaws with respect to special meetings, unless such notice shall be waived in the manner set forth in these Bylaws.

Section 4 - Special Meetings; Notice:
 
(a) Special meetings of the Board of Directors shall be held at such time and place as may be specified in the respective notices or waivers of notice thereof.

(b) Except as otherwise required statute, written notice of special meetings shall be mailed directly to each Director, addressed to him at his residence or usual place of business, or delivered orally, with sufficient time for the convenient assembly of Directors thereat, or shall be sent to him at such place by telegram, radio or cable, or shall be delivered to him personally or given to him orally, not later than the day before the day on which the meeting is to be held. If mailed, the notice of any special meeting shall be deemed to be delivered on the second day after it is deposited in the United States mails, so addressed with postage prepaid. If notice is given by telegram, it shall be deemed to be delivered when the telegram is delivered to the telegraph company. A notice, or waiver of notice, except as required by these Bylaws, need not specify the business to be transacted at or the purpose or purposes of the meeting.
 
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(c) Notice of any special meeting shall not be required to be given to any Director who shall attend such meeting without protesting prior thereto or at its commencement, the lack of notice to him, or who submits a signed waiver of notice, whether before or after the meeting. Notice of any adjourned meeting shall not be required to be given.

(d) Unless otherwise stated in the Articles of Incorporation of the Corporation, the Chairperson, President, Treasurer, Secretary or any two or more Directors of the Corporation may call any special meeting of the Board of Directors.

Section 5 - Chairperson:

The Chairperson of the Board, if any and if present, shall preside at all meetings of the Board of Directors. If there shall be no Chairperson, or he or she shall be absent, then the President shall preside, and in his absence, any other Director chosen by the Board of Directors shall preside.

Section 6 - Quorum and Adjournments:

(a) At all meetings of the Board of Directors, or any committee thereof, the presence of a majority of the entire Board, or such committee thereof, shall constitute a quorum for the transaction of business, except as otherwise provided by law, by the Certificate of Incorporation, or these Bylaws. (Note: If the Certificate of Incorporation authorize a quorum to consist of less than a majority, but no fewer than one-third of the prescribed number of Directors as permitted by law except that when a card of one Director is authorized under Section 141 of the Delaware General Corporation Law, then one Director shall constitute a quorum or if the Certificate of Incorporation and/or Bylaws require a greater number than a majority as constituting a quorum then these Bylaws would state that this lesser or greater amount, instead of a majority, will constitute a quorum.)

(b) A majority of the Directors present at the time and place of any regular or special meeting, although less than a quorum, may adjourn the same from time to time without notice, whether or not a quorum exists. Notice of such adjourned meeting shall be given to Directors not present at time of the adjournment and, unless the time and place of the adjourned meeting are announced at the time of the adjournment, to the other Directors who were present at the adjourned meeting.

Section 7 - Manner of Acting:
 
(a) At all meetings of the Board of Directors, each director present shall have one vote, irrespective of the number of shares of stock, if any, which he may hold.

(b) Except at otherwise provided by law, by the Certificate of Incorporation, or these By Laws, action approved by a majority of the votes of the Directors present at any meeting of the Board or any committee thereof, at which a quorum is present shall be the act of the Board of Directors or any committee thereof.
 
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(c) Any action authorized in writing made prior or subsequent to such action, by all of the Directors entitled to vote thereon and filed with the minutes of the Corporation shall be the act of the Board of Directors, or any committee thereof, and have the same force and effect as if the same had been passed by unanimous vote at a duly called meeting of the Board or committee for all purposes and may be stated as such in any certificate or document filed with the Secretary of the State of Delaware.

(d) Where appropriate communications facilities are reasonably available, any or all Directors shall have the right to participate in any Board of Directors meeting, or a committee of the Board of Directors meeting, by means of conference telephone or any means of communications by which all persons participating in the meeting are able to hear each other.

Section 8 - Vacancies:
 
(a) Any vacancy in the Board of Directors occurring by reason of an increase in the number of Directors or by reason of the death, resignation, disqualification, removal or inability to act of any Director, or other cause, shall be filled by an affirmative vote of a majority of the remaining Directors, though less than a quorum of the Board or by a sole remaining Director, at any regular meeting or special meeting of the Board of Directors called for that purpose except whenever the shareholders of any class or classes or series thereof are entitled to elect one or more Directors by the Certificate of Incorporation of the Corporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the Directors elected by such class or classes or series thereof then in office, or by a sole remaining Director so elected.

(b) If at any time, by reason of death or resignation or other cause, the Corporation shall have no Directors in office, then an officer or any shareholder or an executor, administrator, trustee, or guardian of a shareholder, or other fiduciary entrusted with like responsibility for the person or estate of a shareholder, may call a special meeting of shareholders to fill such vacancies or may apply to the Court of Chancery for a decree summarily ordering an election.

(c) If the Directors of the Corporation constitute less than a majority of the whole Board, the Court of Chancery may, upon application of any shareholder or shareholders holding at least ten percent of the total number of shares entitled to vote for Directors, order an election to be held to fill any such vacancies or newly created directorships.

(d) Unless otherwise provided for by statute, the Certificate of Incorporation or these Bylaws, when one or more Directors shall resign from the board and such resignation is effective at a future date, a majority of the Directors, then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote otherwise to take effect when such resignation or resignations shall become effective.

Section 9 - Resignation:
 
The shareholders may, at any meeting, vote to accept the resignation of any Director.

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Section 10 - Removal:
 
One or more or all the Directors of the Corporation may be removed with or without cause at any time by the shareholders, at a special meeting of the shareholders called for that purpose, unless the Certificate of Incorporation provides that Directors may only be removed for cause, provided however, such Director shall not be removed if the Corporation states in its Certificate of Incorporation that its Directors shall be elected by cumulative voting and there are a sufficient number of shares cast against his or her removal, which if cumulatively voted at an election of Directors would be sufficient to elect him or her. If a Director was elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove that Director.

Section 11 - Compensation:

The Board of Directors may authorize and establish reasonable compensation of the Directors for services to the Corporation as Directors, including, but not limited to attendance at any annual or special meeting of the Board.

Section 12 - Committees:

The Board of Directors, by resolution adopted by a majority of the entire Board, may from time to time designate from among its members one or more committees, and alternate members thereof, as they deem desirable, each consisting of one or more members, with such powers and authority (to the extent permitted by law and these Bylaws) as may be provided in such resolution. Each such committee shall serve at the pleasure of the Board and, unless otherwise stated by law, the Certificate of Incorporation of the Corporation or these Bylaws, shall be governed by the rules and regulations stated herein regarding the Board of Directors.

ARTICLE IV - OFFICERS

Section 1 - Number, Qualifications, Election and Term of Office:
 
(a) The Corporation's officers shall have such titles and duties as shall be stated in these Bylaws or in a resolution of the Board of Directors which is not inconsistent with these Bylaws. The officers of the Corporation shall consist of an officer whose duty is to record proceedings of shareholders' and Directors' meetings and such other officers as the Board of Directors may from time to time deem advisable. Any officer other than the Chairman of the Board of Directors may be, but is not required to be, a Director of the Corporation. Any two or more offices may be held by the same person.

(b) The officers of the Corporation shall be elected by the Board of Directors at the regular annual meeting of the Board following the annual meeting of shareholders.

(c) Each officer shall hold office until the annual meeting of the Board of Directors next succeeding his election, and until his successor shall have been duly elected and qualified, subject to earlier termination by his or her death, resignation or removal.

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Section 2 - Resignation:
 
Any officer may resign at any time by giving written notice of such resignation to the Corporation.

Section 3 - Removal:
 
Any officer elected by the Board of Directors may be removed, either with or without cause, and a successor elected by the Board at any time, and any officer or assistant officer, if appointed by another officer, may likewise be removed by such officer.

Section 4 - Vacancies:
 
(a) A vacancy, however caused, occurring in the Board and any newly created Directorships resulting from an increase in the authorized number of Directors may be filled by the Board of Directors.

Section 5 - Bonds:

The Corporation may require any or all of its officers or Agents to post a bond, or otherwise, to the Corporation for the faithful performance of their positions or duties.

Section 6 - Compensation:
 
The compensation of the officers of the Corporation shall be fixed from time to time by the Board of Directors.

ARTICLE V - SHARES OF STOCK

Section 1 - Certificate of Stock:
 
(a) The shares of the Corporation shall be represented by certificates or shall be uncertificated shares.

(b) Certificated shares of the Corporation shall be signed, (either manually or by facsimile), by the Chairperson, Vice-Chairperson, President or Vice-President and Secretary or an Assistant Secretary or the Treasurer or Assistant Treasurer, or any other Officer designated by the Board of Directors, certifying that the number of shares owned by him or her in the Corporation, provided however that where such certificate is signed by a transfer agent or an assistant transfer agent or by a transfer clerk acting on behalf of the Corporation and a registrar, any such signature may be a facsimile thereof. In case any officer who has signed or whose facsimile signature has been placed upon such certificate, shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issue.

(c) Certificates shall be issued in such form not inconsistent with the Certificate of Incorporation and as shall be approved by the Board of Directors. Such certificates shall be numbered and registered on the books of the Corporation, in the order in which they were issued.

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(d) Except as otherwise provided by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of certificates representing shares of the same class and series shall be identical.

Section 2 - Lost or Destroyed Certificates:
 
The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed if the owner:

(a) so requests before the Corporation and has given notice that the shares have been acquired by a bona fide purchaser,

(b) files with the Corporation a sufficient indemnity bond; and

(c) satisfies such other requirements, including evidence of such loss, theft or destruction, as may be imposed by the Corporation.

Section 3 - Transfers of Shares:
 
(a) Transfers or registration of transfers of shares of the Corporation shall be made on the stock transfer books of the Corporation by the registered holder thereof, or by his attorney duly authorized by a written power of attorney; and in the case of shares represented by certificates, only after the surrender to the Corporation of the certificates representing such shares with such shares properly endorsed, with such evidence of the authenticity of such endorsement, transfer, authorization and other matters as the Corporation may reasonably require, and the payment of all stock transfer taxes due thereon.

(b) The Corporation shall be entitled to treat the holder of record of any share or shares as the absolute owner thereof for all purposes and, accordingly, shall not be bound to recognize any legal, equitable or other claim to, or interest in, such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by law.

Section 4 - Record Date:
 
(a) The Board of Directors may fix, in advance, which shall not be more that sixty, nor less than ten days before the meeting or action requiring a determination of shareholders, as the record date for the determination of shareholders entitled to receive notice of, or to vote at, any meeting of shareholders, or to consent to any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividends, or allotment of any rights, or for the purpose of any other action. If no record date is fixed, the record date for a shareholder entitled to notice of meeting shall be at the close of business on the day preceding the day on which notice is given, or, if no notice is given, the day on which the meeting is held, or if notice is waived, at the close of business on the day before the day on which the meeting is held.

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(b) The Board of Directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted for shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights of shareholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, provided that such record date shall not be more than sixty days before such action.

(c) The Board of Directors may fix, in advance, a date which shall not precede the date upon which the resolution fixing the record is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date is fixed and no prior action is required by the Board, the record date for determining shareholders entitled to consent to corporate action in writing without a meeting, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken in delivered to the Corporation by delivery by hand or by certified or registered mail, return receipt requested, to its registered office in this State, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of shareholders are recorded. If no record date is fixed by the Board of Directors and prior action is required by law, the record date for determining shareholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.

(d) A determination of shareholders entitled to notice of or to vote at a shareholders' meeting is effective for any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting.

ARTICLE VI - DIVIDENDS

Subject to applicable law, dividends may be declared and paid out of any funds available therefor, as often, in such amounts, and at such time or times as the Board of Directors may determine.

ARTICLE VII - FISCAL YEAR

The fiscal year of the Corporation shall be fixed, and shall be subject to change by the Board of Directors from time to time, subject to applicable law.

ARTICLE VIII - CORPORATE SEAL

The corporate seal, if any, shall be in such form as shall be prescribed and altered, from time to time, by the Board of Directors.

ARTICLE IX - AMENDMENTS

Section 1 - Initial Bylaws:

The initial Bylaws of the Corporation shall be adopted by the Board of Directors at its organizational meeting.

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Section 2 - By Shareholders:

All By-Laws of the Corporation shall be subject to alteration or repeal, and new By-Laws may be made, by a majority vote of the shareholders at the time entitled to vote in the election of Directors even though these Bylaws may also be altered, amended or repealed by the Board of Directors.

Section 3 - By Directors:

The Board of Directors shall have power to make, adopt, alter, amend and repeal, from time to time, By-Laws of the Corporation; however, Bylaws made by the Board may be altered or repealed, and new Bylaws made by the shareholders.

ARTICLE X - WAIVER OF NOTICE:

Whenever any notice is required to be given by law, the Certificate of Incorporation or these Bylaws, the meeting of shareholders, Board of Directors, or committee thereof, or attendance at the meeting by any person, shall constitute a waiver of notice of such meeting, except when the person attends the meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of shareholders, Directors or committee thereof needs to be specified in any written waiver of notice.

ARTICLE XI - INTERESTED DIRECTORS:

No contract or transaction shall be void or voidable if such contract or transaction is between the Corporation and one or more of its Directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its Directors or officers, are Directors or Officers, or have a financial interest, which such Director or officer is present at or participates in the meeting of the Board or committee which authorizes the contract or transaction or his, her or their votes are counted for such purpose, if:

(a) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested Directors, even though the disinterested Directors be less than a quorum; or

(b) the material facts as to his, her or their relationship or relationships or interest or interests and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders; or

(c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee or the shareholders. Such interested Directors may be counted when determining the presence of a quorum at the Board of Directors or committee meeting authorizing the contract or transaction.

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ARTICLE XII - FORM OF RECORDS:

Any records maintained by the Corporation in its regular course of business, including, but not limited to, its stock ledger, books of account and minute book, may be kept on, or be in the form of punch cards, magnetic tape, photographs, micro-photographs or any other information storage device, provided that the records so kept may be converted into clearly legible written form within a reasonable time. The Corporation shall so convert any of such records so kept upon the request of any person entitled to inspect the same.

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SECURITIES PURCHASE AGREEMENT
 
BY AND AMONG

CATALYST LIGHTING GROUP, INC.

AND
 
KIG INVESTORS I, LLC
 
DATED AS OF AUGUST 22, 2007


 
SECURITIES PURCHASE AGREEMENT
 
THIS SECURITIES PURCHASE AGREEMENT (the “ Agreement ”) is made and entered into as of August 22, 2007, by and among KIG Investors I, LLC, a Delaware limited liability company (the " Buyer ") and Catalyst Lighting Group, Inc. a Delaware corporation (the “ Company ").
 
RECITALS
 
A.   The Company currently has 4,190,642 shares of common stock, $0.01 par value, issued and outstanding (“ Common Stock ”).
 
B.   The Company desires to issue to the Buyer 1,572,770 shares of Series A Convertible Preferred Stock, $0.01 par value (“ Preferred Shares ”) which are convertible into 25,620,147 shares of Common Stock (“ Conversion Shares ”), and the Buyer desires to purchase the Preferred Shares from the Company (“ Stock Issuance ”), for a purchase price of $157,277, or $0.10 per share, and on such other terms and conditions set forth herein.
 
C.   As a condition of the Stock Issuance, the proceeds of the purchase price from the Stock Issuance shall be used to pay certain liabilities and obligations of the Company, all as more specifically set forth herein.
 
D.   As a further condition to the Stock Issuance, the Company shall have entered into certain settlement and release agreements (“ Settlement Agreements ”) with certain creditors of the Company (“ Settlement Creditors ”) pursuant to which such creditors have agreed to accept, in the aggregate, up to 11,542,574 shares of the Company common stock (“ Settlement Shares ”) in exchange for each creditor’s agreement to terminate and cancel any and all agreements and contracts with the Company (including any warrants to purchase shares of the Company’s common stock) and to irrevocably release the Company from any and all debts, liabilities and obligations, pursuant to the terms and conditions set forth in such Settlement Agreements, which such terms and conditions shall be acceptable to the Buyer.
 
E.   In connection with the Stock Issuance, the Conversion Shares underlying the Preferred Shares issued by the Company to the Buyer will be granted registration rights pursuant to the terms and conditions set forth in a certain registration rights agreement between the Company, the Buyer and the Settlement Creditors, the form of which is attached hereto as Exhibit A (“ Registration Rights Agreement ”).
 
F.   The execution and delivery of this Agreement, the consummation of the transactions contemplated under this Agreement and the execution and delivery of the Registration Rights Agreement have been duly authorized and approved by the directors of the Company, and no approval of the stockholders of the Company is required with respect to any of the foregoing.
 
NOW, THEREFORE, in consideration of the above recitals, the covenants, promises and representations set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
 

 
ARTICLE I
 
SALE AND PURCHASE
 
1.1   Sale and Purchase of Shares; Registration Rights .   At the Closing and subject to and upon the terms and conditions of this Agreement, the Company agrees to sell and issue to the Buyer, and the Buyer agrees to purchase from the Company, the Preferred Shares. The Preferred Shares, when issued, shall have registration rights pursuant to the terms and conditions of the Registration Rights Agreement, which Registration Rights Agreement shall be executed and delivered by the Company and the Buyer at Closing. As of Closing, the Preferred Shares shall constitute not less than 61.8% of the issued and outstanding shares of the Company’s Common Stock on an as-converted and fully diluted basis. The sale and purchase of Preferred Shares contemplated hereunder shall be referred to herein as the " Transaction " or the “ Stock Issuance ”.
 
1.2   Closing .   Unless this Agreement shall have been terminated pursuant to Article VIII hereof, and subject to the satisfaction and waiver of the conditions set forth in Article VI hereof, the closing of the Transaction (the “ Closing ”) shall take place at the offices of the Buyer on a date not later than three (3) business following the satisfaction or and waiver of the conditions set forth in Article VI hereof or such other date mutually agreeable to the Buyer and the Company (the “ Closing Date ”).
 
1.3   Purchase Price . The aggregate purchase price for the Preferred Shares shall be One Hundred Fifty-Seven Thousand Two Hundred Seventy-Seven Dollars ($157,277) (" Purchase Price ").
 
1.4   Issuance of Certificates Representing the Preferred Shares . At Closing, the Company shall deliver certificate(s) representing the Preferred Shares with the restrictive legend under the Securities Act of 1933, as amended (“ Securities Act ”).
 
1.5   Taking of Necessary Action; Further Action .  
 
If, at any time after the Closing, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest Buyer with full right, title and possession to the Preferred Shares, the Company will take all such lawful and necessary action.
 
ARTICLE II
 
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
 
The Company hereby represents and warrants to, and covenants with, the Buyer, as follows:
 
2.1   Organization and Qualification .  
 
(a)   The Company is a corporation duly incorporated or organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted by the Company. The Company is in possession of all franchises, grants, authorizations, licenses, permits, easements, consents, certificates, approvals and orders (“ Approvals ”) necessary to own, lease and operate the properties it purports to own, operate or lease and to carry on its business as it is now being by the Company. The Company is duly qualified to conduct its business in each state and each foreign jurisdiction in which is required to do so. The Company has filed each annual corporate or information report (“ Annual Report ”) required to be filed by it in the state of Delaware and in each state and foreign jurisdiction in which it is required to be qualified to do business as a foreign corporation. Complete and correct copies of the articles of incorporation or organization and by-laws (or other comparable governing instruments with different names) (collectively referred to herein as " Charter Documents ") of the Company, as amended and currently in effect, and each Annual Report filed by the Company have been heretofore delivered to the Buyer. The Company is not in violation of any of the provisions of the Company's Charter Documents.
 
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(b)   The minute books of the Company contain true, complete and accurate records of all meetings and consents in lieu of meetings of its Board of Directors (and any committees thereof), similar governing bodies and stockholders (" Corporate Records "), since the time of the Company's organization. Copies of such Corporate Records of the Company have been heretofore delivered to the Buyer.
 
(c)   The Company has heretofore delivered to the Buyer a true, complete and accurate record of the registered ownership of the Company's capital stock maintained by the Transfer Agent as of a recent date acceptable to the Buyer and a record of the beneficial ownership of the Company’s capital stock as of a recent date acceptable to the Buyer, together stock transfer and issuance ledgers and records from the Transfer Agent (" Stock Records ").
 
2.2   Subsidiaries . Whitco Company, LP (“ Whitco ”), a Texas limited partnership, was formerly a wholly-owned subsidiary of the Company, but Whitco was dissolved and terminated as a result of the dissolution of Whitco Management, LLC (“ Whitco Management ”), a Delaware limited liability company and sole general partner of Whitco. The Company was the sole member of Whitco Management.
 
2.3   Authority Relative to this Agreement . The Company has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby (including the Transaction). The execution and delivery of this Agreement and the consummation by the Company of the transactions contemplated hereby (including the Transaction) have been duly and validly authorized by all necessary corporate action on the part of Company (including the approval by its board of directors), and no other corporate proceedings on the part of the Company (including the approval of the Company’s stockholders) are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery thereof by the Buyer, constitutes the legal and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity and public policy.
 
2.4   No Conflict; Required Filings and Consents .  
 
(a)   The execution and delivery of this Agreement by the Company do not, and the performance of this Agreement by the Company shall not: (i) conflict with or violate the Company's Charter Documents, (ii) conflict with or violate any Legal Requirements to which the Company is bound, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or materially impair the Company’s rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the properties or assets of the Company pursuant to any Contracts (as defined in Section 2.16) except, with respect to clauses (ii) or (iii), for any such conflicts, violations, breaches, defaults or other occurrences that would not, individually and in the aggregate, have a Material Adverse Effect on the Company, taken as a whole. For purposes of this Agreement, “ Legal Requirements ” means any federal, state, local, municipal, foreign or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Entity (as defined in Section 2.4(b)), and all requirements set forth in applicable Contracts.
 
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(b)     The execution and delivery of this Agreement by the Company does, and the performance of its obligations hereunder will not, require any consent, approval, authorization or permit of, filing with, or notification to, any court, administrative agency, commission, governmental or regulatory authority, domestic or foreign (a “ Governmental Entity ”), except for applicable requirements, if any, of the Securities Act, the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), state securities laws (“Blue Sky Laws ”), and the rules and regulations thereunder, and appropriate documents with the relevant authorities of other jurisdictions in which the Company is qualified to do business.
 
2.5   Capitalization .  
 
(a)   The authorized capital stock of the Company consists of 40,000,000 shares of common stock, $0.01 par value (" Common Stock ") and 10,000,000 shares of preferred stock, $0.01 par value (" Preferred Stock ") of which 1,600,000 shares will be designated as Series A Convertible Preferred Stock pursuant to the Certificate of Designations of Series A Convertible Preferred Stock attached hereto as Exhibit B ) (" Series A Preferred Stock Designations "). At the close of business on the business day prior to the date hereof:, (i) 4,190,642 shares of the Company’s common stock were issued and outstanding, all of which are validly issued, fully paid and nonassessable; (ii) no shares of the Company’s preferred stock were issued and outstanding; (iii) no options to purchase the Company’s common stock were outstanding; (iv) warrants to purchase 40,433 shares of the Company’s common stock were outstanding (which excludes warrants to be cancelled under the Settlement Agreements and warrants to be cancelled by Keating Investments, LLC) )(“ Warrants ”); and (v) no notes, debentures or securities convertible into the Company’s common stock are outstanding (other than convertible notes held by Laurus Master Fund, Ltd. which will be terminated and canceled under the Settlement Agreements (“ Laurus Notes ”)). All shares of the Company’s common stock subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instrument pursuant to which they are issuable, will be duly authorized, validly issued, fully paid and nonassessable. All securities of the Company have been issued and granted in compliance with (i) all applicable securities laws and regulations, (ii) all Legal Requirements, and (iii) all requirements set forth in any applicable contracts. Prior to Closing, there will an aggregate of 1,600,000 shares of authorized but unissued shares of Series A Convertible Preferred Stock, par value $0.01 per share (“ Series A Preferred Stock ”), which, subject to the approval of the Company’s stockholders of the Reverse Split (as defined herein) and the Certificate of Amendment (as defined herein), which approval in any case shall be required to have occurred subsequent to the Closing (“ Stockholder Approval ”): (i) shall be convertible into 16.28982 shares of Common Stock for each share of Series A Preferred Stock, subject to adjustment for the Reverse Split. Upon the issuance of the shares of the Series A Preferred Stock, and, subject to the Stockholder Approval, the Conversion Shares issuable upon conversion thereof, when issued, will be validly issued, fully paid and non-assessable. The term “ Reverse Split ” shall mean a 1-for-10 reverse stock split of the Company’s outstanding shares of common stock, and the “ Certificate of Amendment ” shall mean the amendment to the Company’s certificate of incorporation which, in addition to the Reverse Split, provides for an increase in the authorized shares of the Company’s common stock from 40,000,000 shares to 200,000,000 shares, and the reduction of the par value for the Company’s common and preferred stock from $0.01 to $0.0001 per share.
 
(b)   Except for the Warrants, Laurus Notes and the Settlement Agreements, (i) there are no subscriptions, options, warrants, equity securities, partnership interests or similar ownership interests, calls, rights (including preemptive rights), commitments or agreements of any character to which the Company is a party or by which it is bound obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, or to repurchase, redeem or otherwise acquire, or cause the repurchase, redemption or acquisition of, any shares of capital stock, partnership interests or similar ownership interests of the Company or obligating the Company to grant, extend, accelerate the vesting of or enter into any such subscription, option, warrant, equity security, call, right, commitment or agreement, (ii) there are no lock up agreements or other agreements affecting the transfer of any equity security of any class of the Company, and (iii) there are no bonds, debentures, notes or other indebtedness of the Company issued or outstanding having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which the stockholders of the Company may vote.
 
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(c)   Except as contemplated by this Agreement and under the Settlement Agreements, there are no registration rights, and there is no voting trust, proxy, rights plan, anti-takeover plan, or other agreement or understanding to which the Company is a party or by which the Company is bound with respect to any equity security of any class of the Company.

(d)   The Preferred Shares to be issued with respect to the Transaction contemplated under this Agreement shall, when issued, be duly authorized, validly issued, fully paid and nonassessable, shall be free and clear of all liens, claims, charges, encumbrances, pledges, mortgages, security interests, options, rights to acquire, proxies, voting trusts or similar agreements, restrictions on transfer or adverse claims of any nature whatsoever (“ Liens ”) and shall have been issued in compliance with all Legal Requirements.
 
2 .6   Compliance . The Company has complied with, are not in violation of, any laws, rules or regulations of any Governmental Entity including, without limitation, any and all applicable securities laws and regulations, environmental laws and regulations, and laws and regulations regarding hazardous and toxic substances and materials, except for failures to comply or violations which, individually or in the aggregate, have not had and are not reasonably likely to have a Material Adverse Effect on the Company.
 
2.7   Financial Statements; Filings .  
 
(a)     The Company has made available to the Buyer each report and statement filed by the Company with any Governmental Entity (the “ Company Reports ”), which are all the forms, reports and documents required to be filed by the Company with any Governmental Entity, and such Company Reports are true, correct and complete. As of their respective dates, the Company Reports (i) were prepared in accordance and complied in all material respects with the requirements of the applicable Governmental Entity, and the rules and regulations of such Governmental Entities applicable to such Company Reports, and (ii) did not at the time they were filed (and if amended or superseded by a filing prior to the date of this Agreement then on the date of such filing and as so amended or superceded) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Except to the extent set forth in the preceding sentence, the Company makes no representation or warranty whatsoever concerning the Company Reports as of any time other than the time they were filed.
 
(b)   The Company has provided to the Buyer a correct and complete copy of the audited financial statements (including, in each case, any related notes thereto) of the Company and each Subsidiary for the fiscal years ended September 30, 2004 and 2003, complied as to form in all material respects with the published rules and regulations of any applicable Governmental Entity, prepared in accordance with the generally accepted accounting principles of the United States (" U.S. GAAP ") applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto), audited by a certifying accountant registered with the Public Company Accounting Oversight Board (“ PCAOB ”), and each fairly presents in all material respects the financial position of the Company and Subsidiaries at the respective dates thereof and the results of its operations and cash flows for the periods indicated.
 
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(c)       The Company shall provide to the Buyer prior to the Closing, a correct and complete copy of the audited consolidated financial statements (including all related notes thereto) of the Company for the fiscal year ended September 30, 2005, complied as to form in all material respects with the published rules and regulations of any applicable Governmental Entity, prepared in accordance with U.S. GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto), and fairly presenting in all material respects the financial position of the Company and Subsidiaries at the date thereof and the results of its operations and cash flows for the periods indicated.
 
(d)   The Company has previously furnished to the Buyer a complete and correct copy of any amendments or modifications, which have not yet been filed with the applicable Governmental Entities but which are required to be filed with respect to the Company, to agreements, documents or other instruments which previously had been filed by the Company with the applicable Governmental Entities pursuant to applicable rules and regulations. The books of account and other financial records of the Company have been maintained in accordance with good business practice.
 
(e)   On December 27, 2005, the Company filed Form 15-12G (“ Form 15 ”) to withdraw the registration of its common stock under the Exchange Act, the Form 15 was true, accurate and complete, and the Company did not receive any notice or comment from the SEC with respect thereto. Accordingly, none of the Company’s securities are currently registered under Section 12(g) of the Exchange Act.
 
2.8   No Liabilities .   Except as set forth in Schedule 2.8 hereto and except for the obligations of the Company under the Settlement Agreements and Registration Rights Agreement, the Company has no Liabilities. For purposes of this Agreement, “ Liability ” or “ Liabilities ” shall mean all debts, liabilities and obligations, direct, indirect, absolute or contingent of the Company, whether accrued, vested or otherwise, whether known or unknown and whether or not reflected, or required in accordance with U.S. GAAP to be reflected, in the Company’s balance sheet. The proceeds of the Purchase Price will be sufficient to pay and satisfy in full, at Closing, all Liabilities set forth on Schedule 2.8 hereto (“ Scheduled Liabilities ”).
 
2.9   Absence of Certain Changes or Events .   Since September 30, 2006, there has not been: (i) any Material Adverse Effect on the Company, (ii) any declaration, setting aside or payment of any dividend on, or other distribution (whether in cash, stock or property) in respect of, any of the Company’s capital stock, or any purchase, redemption or other acquisition of any of the Company’s capital stock or any other securities of the Company or any options, warrants, calls or rights to acquire any such shares or other securities, (iii) any split, combination or reclassification of any of the Company’s capital stock, (iv) any granting by the Company of any increase in compensation or fringe benefits, except for normal increases of cash compensation in the ordinary course of business consistent with past practice, (v) any material change by the Company in its accounting methods, principles or practices, except as required by concurrent changes in U.S. GAAP, (vi) any change in the auditors of the Company, (vii) any issuance of capital stock of the Company, or (vii) any revaluation by the Company of any of their respective assets, other than in the ordinary course of business.
 
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2.10   Litigation . T here are no claims, suits, actions or proceedings (at law or in equity) pending or threatened against the Company, before any Governmental Entity or arbitrator (including, without limitation, any allegation of criminal conduct or a violation of the Racketeer and Influenced Corrupt Practices, as amended), and the Company is not subject to any outstanding order, writ, judgment, injunction, order, decree or arbitration order. There are no suits, actions, claims, proceedings pending or threatened, seeking to prevent, hinder, modify or challenge the transactions contemplated under this Agreement.
 
2.11   Employee Benefit Plans .  
 
(a)     The Company does not have in place any arrangement or policy (written or oral) providing for insurance coverage, workers’ compensation, disability benefits, supplemental unemployment benefits, vacation benefits, severance or termination benefits, retirement or deferred compensation, profit sharing, bonuses, stock options, stock appreciation rights, stock purchases or other forms of incentive compensation or post-retirement insurance, compensation or benefits which is maintained or administered by the Company, or to which the Company contributes, and which covers any employee or former employee of the Company or under which the Company has any liability, including any “employee welfare benefit plan,” “employee benefit plan” and “employee pension benefit plan” as defined under the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”).

(b)   Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in any payment (including severance, unemployment compensation, golden parachute, bonus or otherwise) becoming due to any stockholder, director, employee or consultant of the Company.
 
2.12   Labor Matters . The Company is not a party to any collective bargaining agreements or labor union contract. There are no strikes or labor disputes or lawsuits, unfair labor or unlawful employment practice charges, contract grievances or similar actions pending or threatened by any of the employees, former employees or employment applicants of the Company.
 
2.13   Restrictions on Business Activities .   There is no agreement, commitment, judgment, injunction, order or decree binding upon Company or to which Company is a party which has or could reasonably be expected to have the effect of prohibiting or materially impairing any business practice of the Company, any acquisition of property by the Company or the current or future conduct of business by the Company.

2.14   Taxes .  
 
(a)     Definition of Taxes .
 
For the purposes of this Agreement, “ Tax ” or “ Taxes ” refers to any and all federal, state, local and foreign taxes, including, without limitation, gross receipts, income, profits, sales, use, occupation, value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, assessments, governmental charges and duties together with all interest, penalties and additions imposed with respect to any such amounts and any obligations under any agreements or arrangements with any other person with respect to any such amounts and including any liability of a predecessor entity for any such amounts.
 
(b)     Tax Returns and Audits .
 
(i) the Company has timely filed all federal, state, local and foreign returns, estimates, information statements and reports relating to Taxes (“ Returns ”) required to be filed by the Company with any Tax authority prior to the date hereof, except such Returns which are not material to the Company and for those income tax returns for the Company’s fiscal year ended September 30, 2006. All such Returns are true, correct and complete in all material respects. The Company has paid all Taxes shown to be due on such Returns.
 
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(ii) All Taxes that the Company is required by law to withhold or collect have been duly withheld or collected, and have been paid over to the proper governmental authorities.  
 
(iii) The Company has not been delinquent in the payment of any material Tax nor is there any material Tax deficiency outstanding, proposed or assessed against the Company, nor has the Company executed any unexpired waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax.
 
(iv) No audit or other examination of any Return of the Company by any Tax authority is presently in progress, nor has the Company been notified of any request for such an audit or other examination.
 
(v) No adjustment relating to any Returns filed by the Company has been proposed in writing, formally or informally, by any Tax authority to the Company or any representative thereof.
 
(vi) The Company has no liability for any Taxes for its current fiscal year, whether or not such Taxes are currently due and payable.

2.15   No Brokers; Third Party Expenses . Neither the Neither company nor the principals of the Company have incurred, nor will they incur, directly or indirectly, any liability for brokerage commissions in connection with this Agreement or any transaction contemplated hereby.
 
2.16   Agreements, Contracts and Commitments . Except as set forth in Schedule 2.16 , (a) there are no written employment agreements, termination or severance agreements, or consulting agreements with the current or former officers, directors, employees or consultants of the Company and to which the Company is a party; (b) the Company is not a party to and is not bound by any commitment, agreement or other instrument which contemplates payment of any monies or which is otherwise material to the operations, assets or financial condition of the Company, including but not limited to any royalty, franchising fees, or any other fee based on a percentage of revenues or income; (c) the Company is not a party to and is not bound by any commitment, agreement or instrument which limits the freedom of the Company to compete in any line of business or with any Person; and (d) the Company is not in default in any material respect under any material lease, contract, mortgage, indentures, note, deed of trust, loan agreement, bond, guaranty, liens, license, permit, franchise, purchase orders, sales orders, arbitration awards, judgments, decrees, orders, documents, instruments, understandings and commitments, or other instrument or obligation of any kind, whether written or oral. True, correct and complet