UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(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, 1999
( ) 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) 434-1300
(Issuer's telephone number)
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 15,816,857
(Title of Each Class) (Outstanding at September 9, 1999)
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WINDSWEPT ENVIRONMENTAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31,
1999 April 30,
(Unaudited) 1999
----------- ---------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 23,552 $ 46,336
Accounts receivable, net of allowance for doubtful
accounts of $100,000 and $100,000, respectively 2,335,066 2,249,198
Due from officer 100,000 100,000
Inventories 134,335 129,620
Costs and estimated earnings in excess of billings
on uncompleted contracts 220,748 157,000
Prepaid and other current assets 305,996 379,970
------------ -----------
Total current assets 3,119,697 3,062,124
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $3,015,984 and $2,798,662, respectively 2,123,176 2,333,530
OTHER ASSETS
Goodwill, net of accumulated amortization of $48,286
and $45,994, respectively 73,740 76,032
Notes receivable, net of current portion of $106,636
and $105,764, respectively 100,547 110,912
Other assets 154,275 162,524
------------ -----------
TOTAL ASSETS $ 5,571,435 $ 5,745,122
============ ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 3,286,400 $ 3,558,041
Revolving credit note payable 1,299,032 1,200,596
Billings in excess of costs and estimated earnings on
uncompleted contracts 69,226 226,000
Payroll taxes payable 159,231 107,570
Sales taxes payable 552,633 481,826
Current portion of long-term debt 818,868 1,033,502
Obligations of unconsolidated subsidiary, net 196,112 196,112
------------ -----------
Total current liabilities 6,381,502 6,803,647
OTHER LIABILITIES
Convertible notes 790,000 790,000
Long-term debt, net of current portion 190,622 198,732
------------ -----------
Total liabilities 7,362,124 7,792,379
COMMITMENTS AND CONTINGENCIES
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
par value $.01; 1,300,000 shares issued and outstanding 1,300,000 1,300,000
------------ -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value,
10,000,000 shares authorized - -
Common stock, $.0001 par value,
50,000,000 shares authorized; issued and outstanding,
15,776,857 and 14,135,073 shares, respectively 1,578 1,414
Additional paid-in capital 29,244,400 28,948,201
Accumulated deficit (32,336,667) (32,296,872)
------------ -----------
Total stockholders' equity (deficit) (3,090,689) (3,347,257)
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 5,571,435 $5,745,122
============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
1
<PAGE>
WINDSWEPT ENVIRONMENTAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
(Unaudited)
<TABLE>
<CAPTION>
July 31, July 31,
1999 1998
-------- --------
<S> <C> <C>
Revenues $ 2,781,532 $ 3,443,463
Cost of revenues 1,987,713 2,321,157
------------ -----------
Gross profit 793,819 1,122,306
Selling, general and administrative expenses 651,341 838,595
Income from operations 142,478 283,711
Other income (expense):
Interest expense (182,454) (276,306)
Other, net 181 15,332
------------ -----------
Total other income (expense) (181,273) (260,974)
Net (loss) income (39,795) 22,737
Dividends on Series A Convertible Preferred Stock 19,500 19,500
------------ -----------
Net (loss) income attributable to common shareholders $ (59,295) $ 3,237
============ ===========
Basic net (loss) income per common share $ .00 $ .00
============ ===========
Diluted net income per common share $ .00
===========
Weighted average number of common shares outstanding:
Basic 14,663,804 12,185,528
============ ===========
Diluted 14,414,428
===========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
2
<PAGE>
WINDSWEPT ENVIRONMENTAL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
Number of Par Paid-in Accumulated
Shares Value Capital Deficit Total
--------- ----- ------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1999 14,135,073 $ 1,414 $ 28,948,201 $(32,296,872) $(3,347,257)
Proceeds from private placements of
common stock 842,334 83 136,267 - 136,350
Exercise of stock option 7,000 1 2,624 - 2,625
Issuance of common stock for services 767,450 77 171,733 - 171,810
Issuance of common stock for
director compensation 25,000 3 5,075 - 5,078
Dividends - preferred stock - - (19,500) - (19,500)
Net loss - - - (39,795) (39,795)
---------- ------- ------------- ------------- -------------
Balance at July 31, 1999 15,776,857 $ 1,578 $ 29,244,400 $(32,336,667) $ (3,090,689)
========== ======= ============= ============= =============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
WINDSWEPT ENVIRONMENTAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
(Unaudited)
<TABLE>
<CAPTION>
July 31, July 31,
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net (loss) income $ (39,795) $ 22,737
Adjustments to reconcile net (loss) income to net cash
used by operating activities:
Depreciation and amortization 227,863 255,077
Issuance of common stock for director compensation 5,078 11,400
Issuance of common stock for services 171,810 -
Gain on disposal of equipment - (15,332)
Changes in operating assets and liabilities:
Accounts receivable (85,868) (42,737)
Inventories (4,715) 12,040
Costs and estimated earnings in excess of billings
on uncompleted contracts 157,000 (82,648)
Prepaid and other current assets (146,775) 78,822
Accounts payable and accrued expenses (291,141) (30,979)
Payroll and sales taxes payable 122,469 (395,482)
Billings in excess of costs and estimated earnings
on uncompleted contracts (156,774) (71,000)
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (40,848) (258,102)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Collection of notes receivable 10,365 13,926
Proceeds from insurance settlement - 20,332
Purchases of property and equipment (6,968) (56,810)
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 3,397 (22,552)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of long-term debt and factor advances (222,744) (1,914,491)
Proceeds from revolving bank line, net 98,436 1,583,462
Proceeds from equipment term loan 595,000
Dividends paid on redeemable preferred stock (19,500)
Proceeds from issuance of common stock 138,975 68,000
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,667 312,471
----------- -----------
NET (DECREASE) INCREASE IN CASH (22,784) 31,817
CASH -BEGINNING 46,336 33,915
----------- -----------
CASH - ENDING $ 23,552 $ 65,732
=========== ===========
Cash paid during the period for:
Interest $ 174,577 $ 299,386
=========== ===========
Taxes $ - $ 1,500
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
WINDSWEPT ENVIRONMENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JULY 31, 1999
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared by management in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB and Item 310 of Regulation S-B. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
The results of operations for interim periods are not necessarily indicative
of the results to be expected for the full year. These consolidated interim
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-KSB for the
fiscal year ended April 30, 1999.
2. LIQUIDITY AND BUSINESS RISKS
The Company's financial statements have been prepared assuming that the
Company will continue as a going concern. As of July 31, 1999 the Company has
a stockholders' deficit of $3,090,689 and an accumulated deficit of
$32,336,667. The Company has financed its operations to date primarily
through issuances of debt and equity securities. At July 31, 1999, the
Company had $23,552 in cash, and a working capital deficit of $3,261,805. In
addition, as of July 31, 1999, the Company was in arrears with respect to
certain payroll and sales tax obligations of approximately $100,000 and
$530,000, respectively, and as of July 31, 1998 was in arrears with respect
to preferred stock dividends of $48,750. In addition, the Company is in
arrears with many of its vendors. These factors raise substantial doubt
about the Company's ability to continue as a going concern. These financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
Although management believes, based on the development of the Company's
business operations and its preliminary discussions with various potential
investors and other sources of financing, that it may be able to raise
additional capital sufficient to meet its working capital needs over the next
twelve months, no assurance can be given that it will be successful in this
respect. The Company is currently seeking strategic alliances or strategic
transactions, such as the proposed transaction with Spotless Plastics
(USA), Inc., to improve its financial condition (see Note 7). The Company
requires substantial working capital to support its ongoing operations.
Revenue growth is expected in new service areas, as the result of the
Company's ability to provide a broad range of services. As is common in the
environmental services industry, payments for services rendered are generally
received pursuant to specific draw schedules after services are rendered.
Thus, pending the receipt of payments for services rendered, the Company must
typically fund substantial project costs, including significant labor and
bonding costs, from financing sources within and outside the Company. Certain
contracts, in particular those with state or federal agencies, may provide
for payment terms of up to 90 days or more and may require the posting of
substantial performance bonds which are generally not released until
completion of the project. As of July 31, 1999, the Company has no available
debt capacity under its line with BACC and is in default thereunder.
Accordingly, BACC currently has the right to foreclose on the Company's
assets, which could force the Company out of business. The Company is
striving to improve its gross margin and control its selling, general, and
administrative expenses. There can be no assurance, however, that changes in
the Company's plans or other events affecting the Company's operations will
not result in accelerated or unexpected cash requirements, or that it will be
successful in obtaining the additional financing to meet its obligations as
they become due. The Company's future cash requirements are expected to
depend on numerous factors, including, but not limited to: (i) the ability to
successfully bid on environmental or related
5
<PAGE>
WINDSWEPT ENVIRONMENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JULY 31, 1999
(Unaudited)
construction contracts, (ii) the ability to generate positive cash flow
from operations, and the extent thereof, (iii) the ability to raise
additional capital or obtain additional financing, and (iv) economic
conditions.
3. INCOME TAXES
No provision (benefit) for income tax was recorded for the period ended July,
31, 1999 due to a net loss being incurred.
4. EQUITY TRANSACTIONS
Stock Options
On June 28, 1999 the Company's Board of Directors granted options to
purchase 750,000 shares of common stock to the directors of the Company,
which included 250,000 options to the Chief Executive Officer. All of
these options are exercisable immediately at an exercise price of $.1875,
and expire June 27, 2004.
On July 20, 1999 the Company granted options to purchase 171,407
shares of common stock to employees. All of these options are exercisable
two years after date of grant at an exercise price of $.3438, and expire
July 19, 2004.
On August 18, 1999 and August 27, 1999 the Company granted options to
purchase 10,000 and 50,000 shares of common stock at exercise prices of
$.3906 and $.3125, respectively, to employees. These options are
exercisable two years and one year after date of grant, respectively, and
expire five years after date of grant.
Issuances of Warrants
During the quarter ended July 31, 1999 the Company issued 842,334
shares of common stock and warrants to purchase 200,000 additional shares
of the Company's common stock exercisable at $.20 per share in private
placement transactions for proceeds of $136,350. The warrants expire on
July 22, 2004.
5. STATEMENTS OF CASH FLOWS
During the quarter ended July 31, 1999, the Company's non-cash
operating activities included the payment of $171,810 for services and
$5,078 in director compensation utilizing its common stock.
6
<PAGE>
WINDSWEPT ENVIRONMENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JULY 31, 1999
(Unaudited)
6. COMMITMENTS AND CONTINGENCIES
Litigation
In October 1996, the United States Attorney for the Eastern District
of New York obtained a federal grand jury indictment against, among others,
the Company's former Chief Operating Officer, Leo Mangan, and former
Special Securities Counsel, James Nearen, on charges that include
violations of federal securities law, including fraudulent issuances of
700,000 shares of the Company's common stock. Mr. Mangan and Mr. Nearen
both subsequently pleaded guilty to the charges in the Federal indictment.
In addition, the Securities and Exchange Commission also instituted an
investigation of the Company. To date, no charges have been filed against
the Company or any other current member of management as a result of the
Eastern District investigation. On June 9, 1999, the Company's Board of
Directors approved making a settlement offer with the Securities and
Exchange Commission pursuant to which the Company will neither admit nor
deny any allegations. If the Securities and Exchange Commission approves
the settlement offer, the Company will not incur any monetary fines.
Additionally, the Company's special defense counsel has advised the Company
that an Assistant United States Attorney confirmed that the Government, at
this time, does not intend to proceed further with its investigation of the
Company.
The Company is a defendant in a litigation matter whereby one or more
plaintiffs claim to be entitled to additional wages while working for a
subcontractor of the Company. The amount of the claim has not been
specified. Management believes that the case is without merit, and intends
to defend the action vigorously.
The Company is party to other litigation matters and claims which are
normal in the course of its operations, and while the results of such
litigation and claims cannot be predicted with certainty, management
believes that the final outcome of such matters will not have a materially
adverse effect on the consolidated financial position, results of
operations and cash flows of the Company.
Other Proceedings
In January 1996 Laboratory Testing Services, Inc. ("LTS"), a
wholly-owned subsidiary, filed a Chapter 11 petition in United States
Bankruptcy Court in the Eastern District of New York. Subsequently, this
case was converted to a Chapter 7 Bankruptcy proceeding. LTS is in process
of liquidation through these bankruptcy proceedings. Management believes
that the Company's financial condition and results of operations will not
be materially affected by this proceeding.
7. SUBSEQUENT EVENTS
Letter of Intent
On September 13, 1999 the Company executed a non-binding Letter of
Intent with Spotless Plastics (USA), Inc. ("Spotless") relating to Spotless
investing $2,500,000 in the Company for a majority voting position and
concurrently loaning the Company $2,000,000 in a convertible debt
financing. Spotless is a wholly-owned subsidiary of Spotless Group Limited,
a publicly traded Australian company. The proposed transaction would give
Spotless nominees majority representation on the Board of Directors. The
transaction is subject to the execution and delivery of definitive
documentation, approval by both boards of directors, the receipt by the
Company's Board of Directors of a fairness opinion and other customary
conditions to closing. Management believes the transaction would
significantly enhance the Company's liquidity and would position the
Company for future profitable growth upon consummation of the transaction.
7
<PAGE>
Equity Transactions
On August 6, 1999 the Company issued 40,000 shares of common stock
in a private placement transaction for proceeds of $6,000.
On September 10, 1999 the Company issued 223,988 shares of common stock
in payment of dividends and accumulated interest aggregating $69,996 on
its Series A redeemable convertible preferred stock.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion of the fiscal quarters ended July 31, 1999 and 1998
should be read in conjunction with the Unaudited Condensed Consolidated
Financial Statements contained herein, including the notes thereto.
This Item 2 and other items in this Form 10-QSB contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The Company's actual results
could differ materially from those set forth in the forward-looking statements.
Forward-looking statements included in this Form 10-QSB involve known and
unknown risks, uncertainties and other factors which could cause actual results,
performance (financial and operating) or achievements expressed or implied by
such forward looking statements not to occur or be realized. Such forward
looking statements generally are based upon the best estimates by the Company of
future results, performance or achievement, based upon current conditions and
the most recent results of operations. Forward looking statements may be
identified by the use of forward looking terminology such as "may", "will",
"expect", "believe", "estimate", "anticipate", "continue", or similar terms,
variations of those terms or the negative of those terms. Potential risks and
uncertainties include, among other things, such factors as the ability of the
Company to consummate the proposed transaction with Spotless Plastics (USA),
Inc., the amount of the Company's revenues, the success of the Company in
limiting or reducing its expenses, the frequency and magnitude of environmental
disasters or disruptions, the effects of new laws or regulations relating to
environmental remediation, the Company's ability to raise capital, the
competitive environment within the Company's industry, dependence on key
personnel, economic conditions, and the other factors and information disclosed
and discussed in other sections in this Form 10-QSB, and in the Company's annual
report on Form 10-KSB for the year ended April 30, 1999. Readers of this Form
10-QSB should carefully consider such risks, uncertainties and other
information, disclosures and discussions which contain cautionary statements
identifying important factors that could cause actual results to differ
materially from those provided in the forward looking statements.
RESULTS OF OPERATIONS
Net loss and net loss per share were $(39,795) and $0.00 for the
three-month period ended July 31, 1999 compared to net income and net income per
share of $22,737 and $0.00 during the comparable period in the prior year.
Revenues decreased by $661,931, or 19.2%, from $3,443,463 in the three-month
period ended July 31, 1998 to $2,781,532 in the three-month period ended July
31, 1999. Gross margins decreased to 28.5% for the three-month period ended July
31, 1999 from 32.6% for the quarter ended July 31, 1998, primarily due to the
decreased revenues creating a higher percentage of indirect costs attributable
to each revenue dollar. The decrease in revenue in the first quarter for the
current year is primarily due to a decline in asbestos and lead abatement
revenue of approximately $1,300,000, which was partially offset by increases in
emergency response services revenues of approximately $500,000 and additional
revenue increases from tank testing, removal and installation services. Asbestos
abatement contracts are usually large contracts performed over longer periods of
time. The Company's cash flow restrictions and interest rate considerations
limited its ability to fund additional projects in the asbestos and lead
abatement area due to the competitive nature and lower profit margins generally
associated with this type of work.
8
<PAGE>
Selling, general and administrative expenses declined by $187,254, or 22.3%,
from $838,595 for the three-month period ended July 31, 1998 to $651,341 for the
three-month period ended July 31, 1999. The decline was primarily related to a
decrease in sales and administrative salaries of approximately $134,000 and a
decrease in marketing and promotional expenses of approximately $48,000.
Interest expense declined $93,852 from $276,306 for the three-month period ended
July 31, 1998 to $182,454 for the three-month period ended July 31,1999. The
substantial decrease in interest expense during the quarter ended July 31, 1999
was principally attributable to a higher interest rate for receivable factoring
in the months of May and June 1998 as well as a penalty for early termination of
the financing agreement with the Company's factor.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial statements have been prepared assuming that the Company
will continue as a going concern. As of July 31, 1999 the Company has a
stockholders' deficit of $3,090,689 and an accumulated deficit of $32,336,667.
The Company has financed its operations to date primarily through issuances of
debt and equity securities. At July 31, 1999, the Company had $23,552 in cash,
and a working capital deficit of $3,261,805. In addition, as of July 31, 1999,
the Company was in arrears with respect to certain payroll and sales tax
obligations of approximately $100,000 and $530,000, respectively, and as of July
31, 1998 was in arrears with respect to preferred stock dividends of $48,750.
In addition, the Company is in arrears with many of its vendors. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. These financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Although management believes, based on the development of the Company's
business operations and its preliminary discussions with various potential
investors and other sources of financing, that it may be able to raise
additional capital sufficient to meet its working capital needs over the next
twelve months, no assurance can be given that it will be successful in this
respect. The Company is currently seeking strategic alliances or strategic
transactions, such as the proposed transaction with Spotless Plastics (USA),
Inc., to improve its financial condition. The Company requires substantial
working capital to support its ongoing operations. Revenue growth is expected in
new service areas, as the result of the Company's ability to provide a broad
range of services. As is common in the environmental services industry, payments
for services rendered are generally received pursuant to specific draw schedules
after services are rendered. Thus, pending the receipt of payments for services
rendered, the Company must typically fund substantial project costs, including
significant labor and bonding costs, from financing sources within and outside
the Company. Certain contracts, in particular those with state or federal
agencies, may provide for payment terms of up to 90 days or more and may require
the posting of substantial performance bonds which are generally not released
until completion of the project. As of July 31, 1999, the Company has no
available debt capacity under its line with BACC and is in default thereunder.
Accordingly, BACC currently has the right to foreclose on the Company's assets,
which could force the Company out of business. The Company is striving to
improve its gross margin and control its selling, general, and administrative
expenses. There can be no assurance, however, that changes in the Company's
plans or other events affecting the Company's operations will not result in
accelerated or unexpected cash requirements, or that it will be successful in
obtaining the additional financing to meet its obligations as they become due.
The Company's future cash requirements are expected to depend on numerous
factors, including, but not limited to: (i) the ability to successfully bid on
environmental or related construction contracts, (ii) the ability to generate
positive cash flow from operations, and the extent thereof, (iii) the ability to
raise additional capital or obtain additional financing, and (iv) economic
conditions. The Company believes that its current resources together with
anticipated positive cash flow from operations, if any, and its ability to raise
additional capital, should provide sufficient cash to meet the Company's needs
for approximately the next twelve months. See Note 7 to the Condensed
Consolidated Financial Statements.
9
<PAGE>
Cash Flow
Net cash used by operating activities was $40,848 in the fiscal quarter
ended July 31, 1999, as compared to net cash used by operating activities of
$258,102 in the fiscal quarter ended July 31, 1998. Accounts receivable
increased $85,868 or 8.3% to $2,435,066. Accounts payable and accrued expenses
decreased by $291,141 or 8.2% to $3,286,400, primarily as a result of decreased
costs relating to the 19.2% decrease in revenues. Cash used for capital
expenditures was $6,988 in the fiscal 2000 period, as compared to $56,810 in the
fiscal 1999 period.
The Year 2000
The Company has taken actions to make its systems, services and
infrastructure Year 2000 compliant. Specifically, the Company believes that its
accounting system, estimating system, and all corporate office computers are Y2K
compliant. The Company also believes that the mechanical and navigational
systems on its fleet of floating vessels, are Y2K compliant. The Company has
inquired of its vendors in the laboratory and consulting division regarding the
Company's equipment being Y2K compliant. The Company now estimates the costs
related to Y2K compliance to be approximately $25,000, exclusive of consulting
fees, and the Company expects to pay these costs out of working capital.
The Company has made inquires and been advised that its banks' and primary
lender's systems are Y2K compliant. As an emergency response provider, the
Company keeps a full inventory of supplies and other materials available at all
times. The Company's inquiries of its largest vendors have led to indications
that they are or expect to be, Y2K compliant by December 1999.
The Company has numerous customer relationships. The Company's current
customers will not necessarily be the same as those in the Year 2000 due to the
nature of its business. However, the Company's inquiries of its largest and most
likely continuing clients indicate that they are in the process of becoming Y2K
compliant and many believe that they are already Y2K compliant. If this were not
the case, the Company's services may be more difficult to provide to these
customers. Increased difficulties would also arise if electric power or wireless
communications systems failed.
The Company has a computer consultant devoted to assessing and analyzing
Y2K issues and arranging for their final resolution. Although at this time, the
Company believes that it has resolved the most significant issues, the Company
may encounter some Y2K impact, which at this time is unforeseen. Due to the
nature of the Company's business, which is primarily labor based, management
believes that it is taking the necessary steps to resolve Year 2000 issues;
however, there can be no assurance that a failure to resolve any such issue
would not have a material adverse effect on the Company. The Company is in the
process of developing a Y2K contingency plan to the extent deemed appropriate.
Seasonality
Since the Company and its subsidiaries are able to perform their services
throughout the year, the business is not considered seasonal in nature. However,
it is affected by the timing of large contracts in certain of its service areas,
i.e., asbestos abatement and construction, as well as the timing of
catastrophes.
10
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 6 to the Condensed Consolidated Financial Statements.
Item 2. Changes in Securities
On June 28, 1999 the Company granted options to purchase an aggregate of 750,000
shares of common stock to the directors of the Company, which included 250,000
options granted to Michael O'Reilly, the Company's Chief Executive Officer. All
of these options are exercisable immediately at an exercise price of $.1875, and
expire June 27, 2004. The issuance of these options were private transactions
exempt from registration under Section 4(2) of the Securities Act.
In July 1999, the Company issued an aggregate of 842,334 shares of common stock
and warrants to purchase 200,000 shares of common stock exercisable at $.20 per
share for the period through July 22, 2004 to an aggregate of 8 investors in
private placement transactions for aggregate gross proceeds of $136,350. The
issuance of these shares of common stock and warrants were private transactions
exempt from registration under Section 4(2) of the Securities Act.
On July 15, 1999, the Company issued 25,000 shares of common stock valued at
$5,078 as compensation to directors. The issuance of these shares of common
stock were private transactions exempt from registration under Section 4(2) of
the Securities Act.
On July 20, 1999, the Company granted options to purchase an aggregate of
171,407 shares of common stock to 19 employees. All of these options are
exercisable two years after date of grant at an exercise price of $.3438, and
expire July 19, 2004. The issuance of these options were private transactions
exempt from registration under Section 4(2) of the Securities Act.
On July 29, 1999, the Company issued 70,000 shares of restricted common stock
valued at $10,500 to a consultant for services. The issuance of these shares of
common stock was a private transaction exempt from registration under Section
4(2) of the Securities Act.
On August 6, 1999 the Company issued 40,000 shares of restricted common stock to
one investor in a private place transaction for gross proceeds of $6,000. The
issuance of these shares of common stock was a private transaction exempt from
registration under Section 4(2) of the Securities Act.
On August 18, 1999, the Company granted options to purchase 10,000 shares of
common stock at an exercise price of $.3906 per share, to one employee. These
options are exercisable two years after the date of grant, and expire five years
after date of grant. The issuance of these options were private transactions
exempt from registration under Section 4(2) of the Securities Act.
On August 27, 1999, the Company granted options to purchase 50,000 shares of
common stock at an exercise price of $.3125 per share, to one employee. The
issuance of these options were private transactions exempt from registration
under Section 4(2) of the Securities Act.
On September 10, 1999, the Company issued 223,988 shares of common stock in
payment of dividends and related interest aggregating $69,996 on its Series A
redeemable convertible preferred stock. The issuance of these shares of common
stock was a private transaction exempt from registration under Section 4(2) of
the Securities Act.
11
<PAGE>
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.
12
<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: October 20, 1999
WINDSWEPT ENVIRONMENTAL GROUP, INC.
By: /s/ Michael O'Reilly
MICHAEL O'REILLY,
Chairman and Chief Executive Officer
By: /s/Daniel G. Rosenberg
DANIEL G. ROSENBERG,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSENSED
FINANCIAL STATEMENTS FOR THE PERIOD ENDED JULY 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JUL-31-1999
<CASH> 23,552
<SECURITIES> 0
<RECEIVABLES> 2,435,066
<ALLOWANCES> 100,000
<INVENTORY> 134,335
<CURRENT-ASSETS> 3,119,697
<PP&E> 5,139,160
<DEPRECIATION> 3,015,984
<TOTAL-ASSETS> 5,571,435
<CURRENT-LIABILITIES> 6,381,502
<BONDS> 0
1,300,000
0
<COMMON> 1,578
<OTHER-SE> (3,092,267)
<TOTAL-LIABILITY-AND-EQUITY> 5,571,435
<SALES> 2,781,532
<TOTAL-REVENUES> 2,781,532
<CGS> 1,987,713
<TOTAL-COSTS> 2,639,054
<OTHER-EXPENSES> (181)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 182,454
<INCOME-PRETAX> (39,795)
<INCOME-TAX> 0
<INCOME-CONTINUING> (39,795)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39,795)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
