UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A-2
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended July 31, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the Transition period from __________ to __________.
Commission File Number: 0 -17072
WINDSWEPT ENVIRONMENTAL GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 11-2844247
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
100 Sweeneydale Avenue, Bay Shore, New York 11706
(Address of principle executive offices)
(516) 694-7060
(Issuer's telephone number)
Comprehensive Environmental Systems Inc.
72B Cabot Street West Babylon, NY 11704
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Common Stock, Par Value $.0001 10,062,349
(Title of Each Class) (Outstanding at August 31, 1997)
Transitional Small Business Disclosure Format (check one): Yes _____ No __X__
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE FOLLOWING AMENDS IN ITS ENTIRETY FORM 10-QSB FOR THE QUARTER ENDED JULY 31,
1996 AS PREVIOUSLY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
SEPTEMBER 10, 1996 AND DECEMBER 17, 1996.
WINDSWEPT ENVIRONMENTAL GROUP, INC. AND SUBSIDIARIES
(Formerly Comprehensive Environmental Systems, Inc.)
CONSOLIDATED BALANCE SHEETS (RESTATED)
(Unaudited)
<TABLE>
<CAPTION>
July 31, April 30,
1996 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 633,411 $ 282,933
Accounts receivable, net of allowance for
doubtful accounts of $106,000 at
July 31, 1996 and $75,000 at April 30, 1996 3,168,000 2,043,740
Inventories and prepaid supplies 370,065 265,065
Other current assets 237,817 148,557
------------ ------------
Total Current Assets 4,409,293 2,740,295
------------ ------------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 3,182,154 3,143,477
------------ ------------
OTHER ASSETS
Investment in non-marketable securities, net of
valuation allowance of $5,993,841 at
July 31, 1996 and April 30, 1996 528,000 628,000
Goodwill, net of accumulated amortization 128,387 131,170
Other assets 40,656 62,447
------------ ------------
TOTAL ASSETS $ 8,288,490 $ 6,705,389
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 254,184 $ 260,952
Accounts payable and accrued expenses 1,614,608 1,335,287
Deposit -- 150,000
Income taxes payable 20,705 59,080
Payroll taxes payable -- 228,591
Obligations of unconsolidated subsidiary, net 147,987 --
------------ ------------
Total Current Liabilities 2,037,484 2,033,910
OTHER LIABILITIES
Long-term debt, net of current portion 297,957 382,324
------------ ------------
Total Liabilities 2,335,441 2,416,234
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 10,000,000 shares authorized,
no shares issued or outstanding -- --
Common stock, $.0001 par value, 50,000,000 shares authorized,
9,028,477 and 6,167,366 shares issued and outstanding, respectively 903 617
Additional paid-in capital 26,541,516 25,159,377
Treasury stock -- (58,000)
Stock subscription receivable -- (46,988)
Accumulated deficit (20,589,370) (20,765,851)
------------ ------------
Total Stockholders' Equity 5,953,049 4,289,155
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,288,490 $ 6,705,389
============ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
1
<PAGE>
WINDSWEPT ENVIRONMENTAL GROUP, INC. AND SUBSIDIARIES
(Formerly Comprehensive Environmental Systems, Inc.)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED (RESTATED)
(Unaudited)
July 31, July 31,
1996 1995
----------- -----------
Revenues $ 5,073,402 $ 3,769,748
Cost of revenues 3,543,356 2,217,427
----------- -----------
Gross profit 1,530,046 1,552,321
Selling, general and administrative expenses 1,238,506 1,476,645
----------- -----------
Income before other income (expense) 291,540 75,676
----------- -----------
Other income (expense):
Settlement of legal claim -- (17,500)
Realized gain on sale of building -- 188,624
Losses on investments (100,003) --
Interest expense (15,895) --
Interest income 839 --
----------- -----------
Total other income (expense) (115,059) 171,124
----------- -----------
Income before income taxes 176,481 246,800
Income taxes -- --
----------- -----------
Net income $ 176,481 $ 246,800
=========== ===========
Earnings per common share $ .02 $ .07
=========== ===========
Weighted average number of
common shares outstanding 7,597,922 3,410,825
=========== ===========
See Accompanying Notes to Consolidated Financial Statements
2
<PAGE>
WINDSWEPT ENVIRONMENTAL GROUP, INC. AND SUBSIDIARIES
(Formerly Comprehensive Environmental Systems, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 1996 (RESTATED)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
------------------- Additional Stock
Number of Par Paid-in Treasury Subscription Accumulated
Shares Value Capital Stock Receivable Deficit Total
--------- ------ ------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1996 6,097,366 $ 617 $ 25,159,377 $ (58,000) $ (46,988) $(20,765,851) $ 4,289,155
Private placements of
common stock 2,711,111 271 1,232,154 1,232,425
Issuance of common
stock for services 150,000 15 149,985 150,000
Issuance of treasury stock
to settle legal obligations 70,000 58,000 58,000
Collection of stock subscription
receivable 46,988 46,988
Net Income 176,481 176,481
--------- ------ ------------- ----------- ----------- ------------ -----------
Balance at July 31, 1996 9,028,477 $ 903 $ 26,541,516 $ -- $ -- $(20,589,370) $ 5,953,049
========= ====== ============= =========== =========== ============ ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
WINDSWEPT ENVIRONMENTAL GROUP, INC. AND SUBSIDIARIES
(Formerly Comprehensive Environmental Systems, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED (RESTATED)
(Unaudited)
July 31, July 31,
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 176,481 $ 246,800
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 160,300 59,144
Gain on sale of building -- (188,624)
Issuance of common stock for services 150,000 442,250
Losses on investment 100,003 --
Changes in operating assets and liabilities:
Accounts receivable (1,124,260) (534,205)
Inventories and prepaid supplies (105,000) (124,666)
Note receivable -- 50,000
Other current assets (89,260) (146,083)
Other assets 21,791 (59,101)
Accounts payable and accrued expenses 279,321 715,243
Current Income taxes (38,375) 45,743
Other current liabilities (228,591) 31,857
Deferred income taxes -- 42,000
----------- -----------
NET CASH FLOWS FROM OPERATING ACTIVITIES (697,590) 580,358
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for investment in subsidiary -- (10,000)
Reserve for contingencies -- (367,309)
Deposits advanced -- 397,943
Obligations of unconsolidated subsidiary, net 147,987 --
Acquisition of fixed assets (196,197) (1,152,891)
Deferred acquisition costs -- (107,126)
----------- -----------
NET CASH FLOWS FROM INVESTING ACTIVITIES (48,210) (1,239,383)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of long-term debt (33,135) (34,165)
Payment of note payable -- (75,000)
Proceeds from issuance of common stock,
net of advance deposits 1,082,425 1,903,144
Stock subscription receivable 46,988 (446,455)
----------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES 1,096,278 1,347,524
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 350,478 688,499
CASH AND EQUIVALENTS-BEGINNING 282,933 648,023
----------- -----------
CASH AND EQUIVALENTS-ENDING $ 633,411 $ 1,336,522
=========== ===========
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
WINDSWEPT ENVIRONMENTAL GROUP, INC. AND SUBSIDIARIES
(Formerly Comprehensive Environmental Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JULY 31, 1996
(Unaudited)
(1) Consolidated Financial Statements The consolidated balance sheet at the end
of the preceding fiscal year has been derived from the audited consolidated
balance sheet contained in the Company's Form 10-KSB and is presented for
comparative purposes. All other financial statements are unaudited. All
unaudited amounts are subject to year-end adjustments and audit, but the
Company believes all adjustments, consisting only of normal and recurring
adjustments, necessary to present fairly the financial position, results of
operations and changes in cash flows for all interim periods presented have
been made. The results of operations for interim periods are not
necessarily indicative of the operating results for the full year.
Footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
in accordance with the published rules and regulations of the Securities
and Exchange Commission. These consolidated financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's Form 10-KSB for the most recent fiscal year.
(2) Equity Transactions During the quarter ended July 31, 1996, the Company
sold and issued 2,711,111 discounted, restricted shares of common stock
under several private placements for gross proceeds of approximately
$1,320,000. Out of the proceeds, approximately $148,000 of fees were paid
to a director of the Company. In addition, the Company issued 150,000
shares of common stock for services rendered during the quarter.
(3) Statements of Cash Flows
NON-CASH FINANCING ACTIVITIES
<TABLE>
<S> <C> <C>
Issuance of restricted common shares for the investment
in New York Testing Laboratories, Inc., and Subsidiaries $ -- $ 67,500
======= ========
Step-up in basis of property and equipment resulting from
the allocated purchase price in excess of net assets
acquired from New York Testing Laboratories, Inc. and Subsidiaries $ -- $328,681
======= ========
Issuance of common shares in exchanged for
services rendered $ -- $ 48,500
======= ========
Issuance of treasury shares in settlement of legal
obligations $58,000 $ --
======= ========
</TABLE>
(4) Restatement of Consolidated Financial Statements During the second quarter
of fiscal 1997, the Company determined that the accounting treatment
related to certain issuances of common stock for various services during
fiscal 1996 and 1995 was improper. This issue came to light subsequent to a
management restructuring. As a result, the Company has restated the
financial statements to properly account for these transactions. The effect
of these changes on the net income for the fiscal quarters ended July 31,
1996 and 1995 are as follows:
July 31,
-----------------------
1996 1995
---- ----
Net income, as originally reported $605,481 $501,030
Net income, as restated $455,481 $246,800
Income per share, as originally reported $ .06 $ .08
Income per share, as restated $ .06 $ .07
5
<PAGE>
WINDSWEPT ENVIRONMENTAL GROUP, INC. AND SUBSIDIARIES
(Formerly Comprehensive Environmental Systems, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JULY 31, 1996
(Unaudited)
(4) Restatement of Consolidated Financial Statements (cont'd) These changes
were principally related to investment service fees and other costs
incurred by the Company which should have been expensed rather than
recorded as a reduction to Additional Paid-in Capital. The restatement had
no effect on the total shares outstanding or Total Stockholders'Equity as
of July 31,1996. The effect of these changes results in an increase of the
Company's Accumulated Deficit of approximately $6,100,000 and $150,000 and
a corresponding increase of Additional Paid-in Capital for such amounts as
of April 30, 1996 and July 31, 1996, respectively.
In connection with the April 30, 1997 year end accounting closing and
subsequent analysis performed, it was determined that errors had been made
with respect to the determination of the carrying value of the deferred
income tax asset as of April 30, 1996 and April 30, 1995. In addition,
$432,000 of compensation paid to a former officer of the Company had been
accounted for as a reduction of additional paid-in capital during the year
ended April 30, 1996. The effect of these changes resulted in an increase
to the Company's Accumulated Deficit of $3,016,000, a decrease in the
Deferred income tax asset of $2,584,000, and an increase of $432,000 in
Additional Paid-in Capital as of April 30,1996. The Company further
determined that the July 31, 1996 10-QSB/A-1 included additional
mistatements. The accompanying consolidated financial statements have been
restated to correct the errors, resulting in the following changesto
accumulated deficit as of July 31, 1996 and the related consolidated
statements of operations for the quarter then ended.
Accumulated Net Earnings
Deficit Income Per Share
------- ------ ---------
As previously reported and restated $(17,294,370) $ 455,481 $ .06
Overstatement of deferred income
tax asset as of April 30, 1995 (1,782,533) -- --
Overstatement of deferred income
tax asset as of and for the year
ended April 30, 1996 (801,467) -- --
Overstatement of additional paid-in
capital and understatement of
compensation expense as of and for
the year ended April 30,1996 (432,000) -- --
Compensation expense previously
charged to additional paid-in capital (148,000) (148,000) (.02)
Provision for doubtful accounts (31,000) (31,000) (.01)
Write-down of investment (100,000) (100,000) (.01)
------------ --------- -----
As adjusted, July 31, 1996 $(20,589,370) $ 176,481 $ .02
============ ========= =====
In addition to the above the Company reclassified certain income statement
and balance sheet amounts to account for an unconsolidated subsidiary in
the process of liquidation, Laboratory Testing Services, Inc., on the
equity basis, which had previously been consolidated.
Reclassifications of $108,000 were made decreasing selling and general
administrative expenses and increasing cost of sales to reflect the proper
classification of certain accounts.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion of the fiscal quarters ended July 31, 1996 and 1995, is
being updated as of September 29, 1997 and should be read in conjunction with
the Consolidated Financial Statements contained herein.
RESULTS OF OPERATIONS
Revenues for the first quarter of fiscal 1997 were $5,073,000, an increase of
$1,303,000, or 35%, from the same period last year.
Gross profit decreased to 30% compared to 41% for the first quarter of fiscal
1996. This decrease was related to the mix of work as well as increases in the
size of certain contracts which normally carry a slightly lower gross profit
percentage.
Income from operations was $291,000 for this current quarter. This represents an
increase of $215,000, or 285%, from the first quarter of last year.
Selling, general and administrative expenses decreased by $238,000 from the
first quarter of last year to the first quarter of this year. As a percentage of
revenues, such expenses decreased from 39% to 24% for the quarters ended July
31, 1995 and 1996, respectively. This percentage decrease is the direct result
of non-recurring expenses incurred in the prior year, streamlining current
operations and setting an overhead structure to accommodate an annual
consolidated revenue base of between $15 and $20 million.
A provision for taxes was not required for the current fiscal quarter because
sufficient reserves exist against the deferred tax assets recognized in prior
periods to off-set such provision. Management believes that the reversal of such
reserves is appropriate in light of the current growth in revenues and earnings
from core operations.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at July 31, 1996 was approximately $2,372,000, an increase of
$1,666,000, or 236%, from April 30, 1996. Cash also increased by $350,000 since
April 30, 1996. As of July 31, 1996 the Company's current ratio and quick ratio
was 2.2:1 and 1.9:1, respectively. This represents a substantial improvement in
liquidity from April 30, 1996 where such ratios were 1.35:1 and 1.14:1,
respectively.
It is managements continued goal to maintain low levels of long-term debt and to
finance equipment acquisition only when appropriate. Total debt compared to
total equity improved from April 30, 1996 to July 31, 1996. Such ratios were
.9:1 and .5:1, respectively. As a result, the current debt/capital structure can
now accommodate a working capital credit facility to finance accounts receivable
that will enhance cash flow and business growth.
The Company believes that the current levels of working capital and liquidity
will not be sufficient to support the continued increase in its revenue base and
scope of operations. As such, management will be seeking new sources of capital
as well as establishing a credit facility in order to meet its goals.
7
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Pending Litigation
The Company commenced an arbitration action in August 1995 in connection with
the Spartan Dismantling Corp. joint operating agreement. The action alleges
breach of contract, fiduciary responsibility and other claims. The Company is
seeking to recover its net advances and accumulated profits of approximately
$2,800,000. Management intends to continue aggressively pursuing this action to
the fullest extent.
In an action that commenced in August 1995 in United States District Court, the
Company, various current and prior officers and directors have been named in a
lawsuit with certain shareholders which contains various allegations asserting
misrepresentations and non-disclosure of certain stock issuances made by the
Company during fiscal 1995. Management denies any wrongdoing, asserts that the
complaint is without merit and intends to continue vigorously defending these
claims and, assert counterclaims.
Other Proceeding
In January 1996, the Company's wholly-owned subsidiary, Laboratory Testing
Services, Inc. ("LTS") filed a Chapter 11 petition in United States Bankruptcy
Court in the Eastern District of New York. Simultaneously to which, operations
of LTS were discontinued and efforts focused on liquidating assets to satisfy
outstanding corporate obligations. This proceeding is expected to be finalized
during fiscal 1997. Company management does not expect any significant
impairment of capital to the extent that settled obligations exceed the
liquidated assets of LTS.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: September 29, 1997
WINDSWEPT ENVIRONMENTAL GROUP, INC.
By: /s/ Michael O'Reilly
---------------------------------------
MICHAEL O'REILLY, Chairman and
Chief Executive Officer
By: /s/ Alan W. Schoenbart
---------------------------------------
ALAN W. SCHOENBART, CPA,
Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 447,104
<SECURITIES> 0
<RECEIVABLES> 3,274,000
<ALLOWANCES> 106,000
<INVENTORY> 370,065
<CURRENT-ASSETS> 4,409,293
<PP&E> 3,182,154
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,288,490
<CURRENT-LIABILITIES> 2,037,484
<BONDS> 297,957
0
0
<COMMON> 903
<OTHER-SE> 5,952,146
<TOTAL-LIABILITY-AND-EQUITY> 8,288,490
<SALES> 5,073,402
<TOTAL-REVENUES> 5,073,402
<CGS> 3,543,356
<TOTAL-COSTS> 4,781,862
<OTHER-EXPENSES> 100,003
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,056
<INCOME-PRETAX> 176,481
<INCOME-TAX> 0
<INCOME-CONTINUING> 176,481
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 176,481
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
