SEC Company Response from COMPOSITE TECHNOLOGY CORP (CIK 0000317477) — Jun 30, 2005
COMPOSITE TECHNOLOGY CORP (CIK 0000317477)
Date: June 30, 2005 · CIK: 0000317477 · Accession: 0001144204-05-020467
AI Filing Summary & Sentiment
File numbers found in text: 333-122280
Referenced dates: June 10, 2005
Letter
Re: Composite Technology Corporation Amended Registration Statement on Form S-3 File No. 333-122280 Filed on June 30, 2005
RICHARDSON & PATEL LLP 10900 Wilshire Boulevard Suite 500 Los Angeles, CA 90024 Telephone (310) 208-1182 Facsimile (310) 208-1154
June 30, 2005
VIA EDGAR AND OVERNIGHT COURIER -------------------------------
Securities and Exchange Commission Division of Corporation Finance 450 Fifth Street, N.W. Washington D.C., 20549 Attn.: Daniel F. Duchovny, Esq. Russel Mancuso, Esq.
Messrs. Duchovny and Mancuso:
On behalf of Composite Technology Corporation (the "Company"), we enclose for filing under the Securities Act of 1933, as amended, Amendment No. 3 to the above-referenced registration statement (the "Registration Statement"). Amendment No. 3 to the Registration Statement contains revisions that have been made in response to the comments received from the staff ("Staff") of the Securities and Exchange Commission in their letter dated June 10, 2005. Set forth below are the Company's responses to the Staff's comments. We have reproduced the Staff's comments in bold type and have followed each comment with our response. References in this letter to "we," "our" or "us" mean the Company or its advisors, as the context may require. Two marked copies of Amendment No. 3 to the Registration Statement and two marked copies of draft amendments to the Company's Form 10-KSB for the fiscal year ended September 30, 2004, Form 10-Q for the quarter ended March 31, 2005 and Form 10-Q for the quarter ended December 31, 2004 are being provided supplementally with a copy of this letter for the convenience of the Staff.
Form S-3 --------
Prospectus Cover Page ---------------------
1. Please disclose in the cover page your recent petition for reorganization.
In response to the Staff's comment, we have added disclosure regarding our recent petition for reorganization in the cover page.
<PAGE>
Securities and Exchange Commission June 30, 2005 Page 2
Recent Developments, page 1 ---------------------------
2. Avoid vague disclosure evidenced by the word "certain," like "certain securities" and "certain subscription agreements. Also clarify how the need for a single forum is related to a decision to make a bankruptcy filing.
We have deleted the referenced term "certain" on pages 1-3, 8-10, 15 and 18 of the Registration Statement. We have also added disclosure to clarify how the need for a single forum is related to our decision to make a bankruptcy filing on page 1.
3. In an appropriate section of your document, please include a summary of the reorganization plan submitted to the bankruptcy court.
We have added a summary of the reorganization plan on page 14.
4. With respect to the unestimable number of shares issuable as result of the reorganization, include the number of shares issuable, and the related dilutive effect, if all claims were paid in full.
The plan of reorganization calls for the payment of all creditor claims in cash unless subject to litigation except for the interest payable on our $15MM debentures.
Interest payable on the debentures accruing since the May 5, 2005 bankruptcy date is payable in stock. From May 5, 2005 to June 30, 2005 interest accrued and payable in stock totals approximately 94,566 shares at $1.454 per share representing approximately 0.1% of the currently outstanding common shares. Quarterly interest valued at $225,000 is payable in stock from July 1, 2005 until the debentures are converted to common shares or at maturity in August, 2007. At the current conversion value per share of $1.454, 154,745 shares would be issued per quarter until the debentures are converted, redeemed, to maturity, or until cash payments are resumed. Each issuance represents approximately 0.1% of the currently outstanding common shares.
The plan of reorganization calls for settlement of all litigation related claims as follows:
Specific issuances of stock will be issued in stock. Claims or settlements in cash will be issued in an equal value of stock calculated by dividing the cash settlement by the average closing price over the past 20 trading days. As of June 27, 2005, the average closing price was $1.454 per share. Based on this value, the following matrix represents the common stock and common stock warrants potentially issued in the event of full payment of all known litigation related claims, except for punitive damages or attorneys' fees and costs that we cannot estimate at this time because the amounts have not been alleged.
<PAGE>
Securities and Exchange Commission June 30, 2005 Page 3
<TABLE> <CAPTION> ---------------- --------------------- --------------- -------------- ------------------ ----------- --------------- Action Summary Common shares Warrants/ Fully diluted Cash Cash issuable Options stock issuable receivable receivable to issuable to CTC CTC for for option/warrant common exercise issued ---------------- --------------------- --------------- -------------- ------------------ ----------- --------------- <S> <C> <C> <C> <C> <C> <C> J.P. Turner & Settled and paid in 0 0 0 0 0 Company, LLC cash in May, 2005 v. Composite prior to Bankruptcy Technology Corp for $100,000 ---------------- --------------------- --------------- -------------- ------------------ ----------- --------------- Composite Currently in 10,300,000 9,900,000 20,200,000 fully $2,375,000 $4,950,000 Technology litigation. Seeks warrants to diluted shares Corporation v. common stock, purchase representing Acquvest: common stock stock at 17.6% of the issuable at $.25 $0.50 per currently per share, and share outstanding common stock common shares. warrants with a $.50 exercise price. Also seeks punitive damages in cash that are not estimable. ---------------- --------------------- --------------- -------------- ------------------ ----------- --------------- Ascendiant Currently in 1,000,000 300,000 at 2,000,000 fully $0 $1,500,000 Capital Group, arbitration and in $1.25/share, diluted shares LLC v. litigation. Seeks 400,000 at representing Composite common stock, $1.50/share, 1.7% of the Technology common stock 300,000 at currently Corporation: options issuable at $1.75/share outstanding $1.25, $1.50, and common shares $1.75 per share. Also seeks attorney costs and punitive damages that are not estimable. ---------------- --------------------- --------------- -------------- ------------------ ----------- --------------- Devone v. Settled. Dismissal 0 0 0 0 0 Donner: filed with no balances due by CTC ---------------- --------------------- --------------- -------------- ------------------ ----------- --------------- Tarbox v. Seeks damages in If damages of 0 515,814 fully 0 0 Koch: excess of $750,000 are diluted shares $750,000. CTC may determined to representing be determined to be be owed by 0.4% of the liable for such CTC, 515,814 currently damages. Actual shares of outstanding damages claimed are common stock common shares not estimable. would be issuable at the current 20 day average price ---------------- --------------------- --------------- -------------- ------------------ ----------- --------------- O'Keeffe vs. Dismissed in May, 0 0 0 0 0 C. William 2005 Arrington and Composite Technology Corporation ---------------- --------------------- --------------- -------------- ------------------ ----------- --------------- David S. Seeks damages of 250,002 plus 0 250,002 fully Shields v. 250,002 shares of other costs diluted shares Composite stock plus representing Technology pre-judgement 0.2% of the Corporation interests and costs currently that are not outstanding estimable common shares ---------------- --------------------- --------------- -------------- ------------------ ----------- --------------- Total 12,065,820 10,900,000 22,965,820 fully $2,375,000 $6,450,000 shares warrants and diluted shares options representing 20.2% of the currently outstanding common shares ---------------- --------------------- --------------- -------------- ------------------ ----------- --------------- </TABLE>
<PAGE>
Securities and Exchange Commission June 30, 2005 Page 4
5. We note in the Reorganization plan that you intend to maintain the current shares of common stock outstanding after the plan is approved by the bankruptcy court and you exit the reorganization proceeding. Given that this plan is subject to the court's approval, please disclose the possibility that the shares of common stock may be canceled without any compensation to the current security holders. Also, disclose other possible effects of the reorganization that may affect your business and prospects as well as your shareholders.
In response to the Staff's comment, we have added disclosure regarding possible effects of the reorganization on our business and prospects as well as our stockholders.
6. Disclose the terms of the $1.2 million agreement you announced on May 12. Include the duration of the payments, the portion to be paid to you, and cancellation provisions.
In response to the Staff's comment, we have added disclosure regarding our firm orders as of June 22, 2005, which consist of:
-A 45 mile order to American Electric Power for wrapped core sold through General Cable for $1.24M. All except approximately 28,000 feet has been shipped to General Cable for wrapping and subsequent sale to the end user utility. We expect to ship the remaining 28,000 feet to General Cable by the end of June. We expect to invoice the entire order representing approximately $593,000 payable to CTC by the end of June with collection anticipated in August, 2005.
-A 23.6 mile order to PacifiCorp for wrapped core sold through General Cable for $800K. The product related to this order will begin production later in June with shipment anticipated in July. We expect to invoice the entire $800K order representing approximately $400,000 payable to CTC in early August with payment in September.
Both of these orders were sold under General Cable's standard terms and conditions and may be cancelled at any time prior to delivery.
Risk Factors ------------
We issued duly authorized shares to employees, page 7 -----------------------------------------------------
7. We note your response to comment 4. Please disclose the amount of consideration you received for the securities mentioned in the risk factor.
We have added disclosure regarding the amount of consideration that we received for the securities mentioned in this risk factor on page 11 of the S-3, page 25 of the 10-KSB, page 28 of the 10-QSB for the quarter ended December 31, 2004 and page 29 of the 10-QSB for the quarter ended March 31, 2005.
Selling Security Holders, page 12 ---------------------------------
8. We note your response to comment 6 and we reissue it in part. Describe the transaction in which Media Relations Strategy received your securities. In addition, please describe how you determined the value of each issuance of warrants set forth in this section. To the extent the explanation is the same for all warrant issuances, you may include it once.
We have added disclosure regarding the transaction in which Media Relations Strategy received shares of common stock in exchange for marketing services rendered to us. We have also added the following disclosure regarding the value of each issuance of warrants set forth in this section: "All warrants were valued using the modified Black-Scholes Merton option pricing model using assumptions documented in the 10KSB on page F-16, namely for fiscal 2004 amounts using a risk free rate of 4.14%, an expected dividend rate of zero, an expected life as the initial life of the warrant, and a volatility of 80.3."
<PAGE>
Securities and Exchange Commission June 30, 2005 Page 5
Exhibits, page II-2 -------------------
9. Please revise the filing to include an updated accountants' consent.
Noted. We intend to include an updated accountants' consent.
Form 10-KSB for the year ended September 30, 2004 -------------------------------------------------
Description of Business -----------------------
Corporate History, page 4 -------------------------
10. Please expand your response to comment 10 to clarify how the transactions are valid under state law (as stated in response 29 of your April 12 letter to us) if you did not distribute information statements. Tell us what information state law requires
Show Raw Text
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.txt
<TEXT>
RICHARDSON & PATEL LLP
10900 Wilshire Boulevard
Suite 500
Los Angeles, CA 90024
Telephone (310) 208-1182
Facsimile (310) 208-1154
June 30, 2005
VIA EDGAR AND OVERNIGHT COURIER
-------------------------------
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington D.C., 20549
Attn.: Daniel F. Duchovny, Esq.
Russel Mancuso, Esq.
Re: Composite Technology Corporation
Amended Registration Statement on Form S-3
File No. 333-122280
Filed on June 30, 2005
Messrs. Duchovny and Mancuso:
On behalf of Composite Technology Corporation (the "Company"), we enclose
for filing under the Securities Act of 1933, as amended, Amendment No. 3 to the
above-referenced registration statement (the "Registration Statement").
Amendment No. 3 to the Registration Statement contains revisions that have been
made in response to the comments received from the staff ("Staff") of the
Securities and Exchange Commission in their letter dated June 10, 2005. Set
forth below are the Company's responses to the Staff's comments. We have
reproduced the Staff's comments in bold type and have followed each comment with
our response. References in this letter to "we," "our" or "us" mean the Company
or its advisors, as the context may require. Two marked copies of Amendment No.
3 to the Registration Statement and two marked copies of draft amendments to the
Company's Form 10-KSB for the fiscal year ended September 30, 2004, Form 10-Q
for the quarter ended March 31, 2005 and Form 10-Q for the quarter ended
December 31, 2004 are being provided supplementally with a copy of this letter
for the convenience of the Staff.
Form S-3
--------
Prospectus Cover Page
---------------------
1. Please disclose in the cover page your recent petition for reorganization.
In response to the Staff's comment, we have added disclosure regarding our
recent petition for reorganization in the cover page.
<PAGE>
Securities and Exchange Commission
June 30, 2005
Page 2
Recent Developments, page 1
---------------------------
2. Avoid vague disclosure evidenced by the word "certain," like "certain
securities" and "certain subscription agreements. Also clarify how the
need for a single forum is related to a decision to make a bankruptcy
filing.
We have deleted the referenced term "certain" on pages 1-3, 8-10, 15 and
18 of the Registration Statement. We have also added disclosure to clarify
how the need for a single forum is related to our decision to make a
bankruptcy filing on page 1.
3. In an appropriate section of your document, please include a summary of
the reorganization plan submitted to the bankruptcy court.
We have added a summary of the reorganization plan on page 14.
4. With respect to the unestimable number of shares issuable as result of the
reorganization, include the number of shares issuable, and the related
dilutive effect, if all claims were paid in full.
The plan of reorganization calls for the payment of all creditor claims in
cash unless subject to litigation except for the interest payable on our
$15MM debentures.
Interest payable on the debentures accruing since the May 5, 2005
bankruptcy date is payable in stock. From May 5, 2005 to June 30, 2005
interest accrued and payable in stock totals approximately 94,566 shares
at $1.454 per share representing approximately 0.1% of the currently
outstanding common shares. Quarterly interest valued at $225,000 is
payable in stock from July 1, 2005 until the debentures are converted to
common shares or at maturity in August, 2007. At the current conversion
value per share of $1.454, 154,745 shares would be issued per quarter
until the debentures are converted, redeemed, to maturity, or until cash
payments are resumed. Each issuance represents approximately 0.1% of the
currently outstanding common shares.
The plan of reorganization calls for settlement of all litigation related
claims as follows:
Specific issuances of stock will be issued in stock. Claims or settlements
in cash will be issued in an equal value of stock calculated by dividing
the cash settlement by the average closing price over the past 20 trading
days. As of June 27, 2005, the average closing price was $1.454 per share.
Based on this value, the following matrix represents the common stock and
common stock warrants potentially issued in the event of full payment of
all known litigation related claims, except for punitive damages or
attorneys' fees and costs that we cannot estimate at this time because the
amounts have not been alleged.
<PAGE>
Securities and Exchange Commission
June 30, 2005
Page 3
<TABLE>
<CAPTION>
---------------- --------------------- --------------- -------------- ------------------ ----------- ---------------
Action Summary Common shares Warrants/ Fully diluted Cash Cash
issuable Options stock issuable receivable receivable to
issuable to CTC CTC for
for option/warrant
common exercise
issued
---------------- --------------------- --------------- -------------- ------------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
J.P. Turner & Settled and paid in 0 0 0 0 0
Company, LLC cash in May, 2005
v. Composite prior to Bankruptcy
Technology Corp for $100,000
---------------- --------------------- --------------- -------------- ------------------ ----------- ---------------
Composite Currently in 10,300,000 9,900,000 20,200,000 fully $2,375,000 $4,950,000
Technology litigation. Seeks warrants to diluted shares
Corporation v. common stock, purchase representing
Acquvest: common stock stock at 17.6% of the
issuable at $.25 $0.50 per currently
per share, and share outstanding
common stock common shares.
warrants with a
$.50 exercise
price. Also seeks
punitive damages in
cash that are not
estimable.
---------------- --------------------- --------------- -------------- ------------------ ----------- ---------------
Ascendiant Currently in 1,000,000 300,000 at 2,000,000 fully $0 $1,500,000
Capital Group, arbitration and in $1.25/share, diluted shares
LLC v. litigation. Seeks 400,000 at representing
Composite common stock, $1.50/share, 1.7% of the
Technology common stock 300,000 at currently
Corporation: options issuable at $1.75/share outstanding
$1.25, $1.50, and common shares
$1.75 per share.
Also seeks attorney
costs and punitive
damages that are
not estimable.
---------------- --------------------- --------------- -------------- ------------------ ----------- ---------------
Devone v. Settled. Dismissal 0 0 0 0 0
Donner: filed with no
balances due by CTC
---------------- --------------------- --------------- -------------- ------------------ ----------- ---------------
Tarbox v. Seeks damages in If damages of 0 515,814 fully 0 0
Koch: excess of $750,000 are diluted shares
$750,000. CTC may determined to representing
be determined to be be owed by 0.4% of the
liable for such CTC, 515,814 currently
damages. Actual shares of outstanding
damages claimed are common stock common shares
not estimable. would be
issuable at
the current
20 day
average price
---------------- --------------------- --------------- -------------- ------------------ ----------- ---------------
O'Keeffe vs. Dismissed in May, 0 0 0 0 0
C. William 2005
Arrington and
Composite
Technology
Corporation
---------------- --------------------- --------------- -------------- ------------------ ----------- ---------------
David S. Seeks damages of 250,002 plus 0 250,002 fully
Shields v. 250,002 shares of other costs diluted shares
Composite stock plus representing
Technology pre-judgement 0.2% of the
Corporation interests and costs currently
that are not outstanding
estimable common shares
---------------- --------------------- --------------- -------------- ------------------ ----------- ---------------
Total 12,065,820 10,900,000 22,965,820 fully $2,375,000 $6,450,000
shares warrants and diluted shares
options representing
20.2% of the
currently
outstanding
common shares
---------------- --------------------- --------------- -------------- ------------------ ----------- ---------------
</TABLE>
<PAGE>
Securities and Exchange Commission
June 30, 2005
Page 4
5. We note in the Reorganization plan that you intend to maintain the current
shares of common stock outstanding after the plan is approved by the
bankruptcy court and you exit the reorganization proceeding. Given that
this plan is subject to the court's approval, please disclose the
possibility that the shares of common stock may be canceled without any
compensation to the current security holders. Also, disclose other
possible effects of the reorganization that may affect your business and
prospects as well as your shareholders.
In response to the Staff's comment, we have added disclosure regarding
possible effects of the reorganization on our business and prospects as
well as our stockholders.
6. Disclose the terms of the $1.2 million agreement you announced on May 12.
Include the duration of the payments, the portion to be paid to you, and
cancellation provisions.
In response to the Staff's comment, we have added disclosure regarding our
firm orders as of June 22, 2005, which consist of:
-A 45 mile order to American Electric Power for wrapped core sold through
General Cable for $1.24M. All except approximately 28,000 feet has been
shipped to General Cable for wrapping and subsequent sale to the end user
utility. We expect to ship the remaining 28,000 feet to General Cable by
the end of June. We expect to invoice the entire order representing
approximately $593,000 payable to CTC by the end of June with collection
anticipated in August, 2005.
-A 23.6 mile order to PacifiCorp for wrapped core sold through General
Cable for $800K. The product related to this order will begin production
later in June with shipment anticipated in July. We expect to invoice the
entire $800K order representing approximately $400,000 payable to CTC in
early August with payment in September.
Both of these orders were sold under General Cable's standard terms and
conditions and may be cancelled at any time prior to delivery.
Risk Factors
------------
We issued duly authorized shares to employees, page 7
-----------------------------------------------------
7. We note your response to comment 4. Please disclose the amount of
consideration you received for the securities mentioned in the risk
factor.
We have added disclosure regarding the amount of consideration that we
received for the securities mentioned in this risk factor on page 11 of
the S-3, page 25 of the 10-KSB, page 28 of the 10-QSB for the quarter
ended December 31, 2004 and page 29 of the 10-QSB for the quarter ended
March 31, 2005.
Selling Security Holders, page 12
---------------------------------
8. We note your response to comment 6 and we reissue it in part. Describe the
transaction in which Media Relations Strategy received your securities. In
addition, please describe how you determined the value of each issuance of
warrants set forth in this section. To the extent the explanation is the
same for all warrant issuances, you may include it once.
We have added disclosure regarding the transaction in which Media
Relations Strategy received shares of common stock in exchange for
marketing services rendered to us. We have also added the following
disclosure regarding the value of each issuance of warrants set forth in
this section: "All warrants were valued using the modified Black-Scholes
Merton option pricing model using assumptions documented in the 10KSB on
page F-16, namely for fiscal 2004 amounts using a risk free rate of 4.14%,
an expected dividend rate of zero, an expected life as the initial life of
the warrant, and a volatility of 80.3."
<PAGE>
Securities and Exchange Commission
June 30, 2005
Page 5
Exhibits, page II-2
-------------------
9. Please revise the filing to include an updated accountants' consent.
Noted. We intend to include an updated accountants' consent.
Form 10-KSB for the year ended September 30, 2004
-------------------------------------------------
Description of Business
-----------------------
Corporate History, page 4
-------------------------
10. Please expand your response to comment 10 to clarify how the transactions
are valid under state law (as stated in response 29 of your April 12
letter to us) if you did not distribute information statements. Tell us
what information state law requires