UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 2000, OR
( ) 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 registrant as specified in its charter)
Delaware 11-2844247
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Sweeneydale Avenue, Bay Shore, New York 11706
(Address of principle executive offices) (Zip Code)
(631) 434-1300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (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 __
The number of shares of Common Stock, par value $.0001, outstanding on September
11, 2000 was 38,456,254.
<PAGE>
PART 1 - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
--------------------
WINDSWEPT ENVIRONMENTAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
JULY 31, 2000 AND APRIL 30, 2000
<TABLE>
<CAPTION>
July 31, April 30,
2000 2000
(Unaudited)
----------- -----------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash $ 243,758 $ 816,560
Accounts receivable, net of allowance for doubtful accounts
of $300,042 and $266,042, respectively 2,665,747 3,422,469
Inventories 126,952 168,151
Costs and estimated earnings in excess of billings on uncompleted
contracts 354,780 150,829
Prepaid expenses and other current assets 149,033 135,384
------------ -----------
Total current assets 3,540,270 4,693,393
PROPERTY AND EQUIPMENT, net of accumulated depreciation
and amortization of $3,871,476 and $3,657,682, respectively 1,728,690 1,749,928
GOODWILL, net of accumulated amortization of $57,754 and $55,387, 64,272 66,639
respectively
OTHER ASSETS 179,086 189,244
------------ -----------
TOTAL $ 5,512,318 $ 6,699,204
============ ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT:
CURRENT LIABILITIES:
Accounts payable $ 1,395,166 $ 1,735,529
Accrued expenses 1,399,334 1,252,853
Short-term notes payable 500,000 500,000
Billings in excess of cost and estimated on uncompleted contracts 106,898 302,854
Accrued payroll and related fringes 339,936 475,931
Sales tax payable 172,000 269,518
Current portion of long-term debt 123,762 136,153
Obligations of unconsolidated subsidiary, net 210,007 210,007
Income taxes payable 176,484 194,684
Other current liabilities 38,829 89,483
------------ ----------
Total current liabilities 4,462,416 5,167,012
------------ ----------
LONG-TERM DEBT 71,013 95,005
------------ ----------
CONVERTIBLE NOTES 2,780,000 2,780,000
------------ ----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE COMMON STOCK 260,772 102,167
------------ ----------
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK,
$.01 par value; 1,300,000 shares authorized; 1,300,000 shares
outstanding at July 31, 2000 and April 30, 2000 1,300,000 1,300,000
------------ ----------
STOCKHOLDERS' DEFICIT:
Series B preferred stock, $01 par value; 50,000 shares authorized;
9,346 shares outstanding at July 31, 2000 and April 30, 2000 93 93
Nondesignated preferred stock, no par value; 8,650,000 shares
authorized; 0 shares outstanding - -
Common stock, $.0001 par value; 50,000,000 shares authorized;
38,456,254 shares outstanding at July 31, 2000 and April 30, 2000 3,846 3,846
Additional paid-in-capital 31,785,450 31,804,950
Accumulated deficit (35,151,272) (34,553,869)
------------ -----------
Total stockholders' deficit (3,361,883) (2,744,980)
------------ -----------
TOTAL $ 5,512,318 $ 6,699,204
============ ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
WINDSWEPT ENVIRONMENTAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
2000 1999
------------ ------------
<S> <C> <C>
Revenues $ 2,818,802 $ 2,561,010
Cost of revenues 2,216,769 1,767,191
------------- ------------
Gross profit 602,033 793,819
Selling, general and administrative expenses 1,151,097 651,341
------------- ------------
(Loss) income from operations (549,064) 142,478
------------- ------------
Other (expense) income:
Interest expense (83,859) (182,454)
Other, net 35,520 181
------------- ------------
Total other expense (48,339) (182,273)
------------- ------------
Loss before provision for income taxes (597,403) (39,795)
------------- ------------
Provision for income taxes - -
------------- ------------
Net loss (597,403) (39,795)
Dividends on Series A Redeemable Preferred Stock (19,500) (19,500)
------------- ------------
Net loss attributable to common shareholders $ (616,903) $ (59,295)
============= ============
Basic and diluted net loss per common share $ (.02) $ (.00)
============= ============
Weighted average number of common shares outstanding:
basic and diluted 38,456,254 14,663,804
============= ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
WINDSWEPT ENVIRONMENTAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (597,403) $ (39,795)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 226,319 227,863
Provision for doubtful accounts 34,000 -
Issuance of common stock and stock options for
director compensation - 5,078
Compensation related to officer options and
redeemable common stock 158,605 -
Issuance of common stock and stock options for
services - 171,810
Changes in operating assets and liabilities:
Accounts receivable 722,722 (85,868)
Inventories 41,199 (4,715)
Costs and estimated earnings in excess of billings
on uncompleted contracts (203,951) 157,000
Prepaid and other current assets (13,649) (146,775)
Accounts payable and accrued expenses (213,382) (291,141)
Payroll and sales tax payable (233,513) 122,469
Income tax payable (18,200) -
Other current liabilities (50,654) -
Billings in excess of costs and estimated earnings
on uncompleted contracts (195,956) (156,774)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (343,863) (40,848)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (192,556) (6,968)
Collection of notes receivable - 10,365
------------ ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (192,556) 3,397
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt and factor
advances (36,383) (222,744)
Proceeds of revolving bank line, net - 98,436
Proceeds from private placement of stock - 138,975
------------ ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (36,383) 14,667
------------ ------------
NET DECREASE IN CASH (572,802) (22,784)
CASH-BEGINNING OF PERIOD 816,560 46,336
------------ ------------
CASH-END OF PERIOD $ 243,758 $ 23,552
============ ============
Cash paid during the period for:
Interest $ 8,805 $ 174,577
============ ============
Taxes $ 18,200 $ -
============ ============
Non cash financing activities:
Issuance of redeemable preferred stock dividend $ 19,500 $ 19,500
============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
WINDSWEPT ENVIRONMENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS FOR PRESENTATION - The accompanying unaudited consolidated financial
statements include the accounts of Windswept Environmental Group, Inc. (the
"Company") and its wholly owned subsidiaries. The unaudited consolidated
financial statements have been prepared by the Company in accordance with
generally accepted accounting principles for interim financial statements
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
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 the Company, all adjustments (consisting of
only normal and recurring accruals) considered necessary to present fairly
the financial position of the Company and its subsidiaries as of July 31,
2000 and the results of operations and cash flows for the three months ended
July 31, 2000 and 1999, have been included. Certain prior period amounts have
been reclassified to conform with the July 2000 presentation.
The results for the three months ended July 31, 2000 and 1999 are not
necessarily indicative of the results for an entire year. It is suggested
that these unaudited consolidated financial statements be read in
conjunction with the Company's audited financial statements and notes
thereto included in the Company's Form 10-KSB for the fiscal year ended
April 30, 2000.
2. LIQUIDITY AND BUSINESS RISKS - As of July 31, 2000, the Company had a
stockholders' deficiency of $3,361,883 and an accumulated deficit of
$35,151,272. The Company has financed its operations to date primarily
through issuances of debt and equity securities. As of July 31, 2000, the
Company had $243,758 in cash and a working capital deficit of $922,146. In
addition, as of July 31, 2000, the Company was in arrears with respect to
certain sales tax obligations of approximately $115,000 as well as
preferred stock dividends plus interest of approximately $71,000. The
Company is also in arrears with many of its vendors. These factors raise
substantial doubt as to the Company's ability to continue as a going
concern. The Company's financial statements have been prepared assuming
that the Company will continue as a going concern. The financial statements
do not contain any adjustments that might result from the outcome of this
uncertainty.
On October 29, 1999, the Company consummated an equity and debt
financing transaction with Spotless Plastics (USA), Inc. ("Spotless") that
significantly improved the Company's liquidity and cash position. The
Company received $2,500,000 in exchange for equity and $2,000,000 of debt
financing in the transaction (the "Spotless Transaction"). These proceeds
were used to repay in full the Company's outstanding balance under a credit
facility and reduce certain outstanding vendor balances. The Spotless
Transaction significantly reduced the Company's cost of capital. However,
management believes the Company will require positive cash flow from
operations to meet its working capital needs over the next twelve months.
In the event that positive cash flow from operations is not generated, the
Company may be required to seek additional financing to meet its working
capital needs. The Company currently has no credit facility for additional
borrowing. Management continues to pursue additional funding sources and is
discussing the availability of credit facilities with various lenders.
Revenue growth is expected in new and existing service areas. The Company
continues to strive for improvement in its gross margin and containment of
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 achieving
positive cash flow from operations or obtaining additional financing. The
Company's future cash requirements are expected to depend on numerous
factors, including, but not limited to: (i) the ability to obtain
environmental or related construction contracts, (ii) the ability to
generate positive cash flow from operations, (iii) the ability to raise
additional capital or obtain additional financing, and (iv) economic
conditions.
In March and April 2000, the Company borrowed an aggregate of $500,000
from Spotless for working capital requirements. On September 8, 2000, the
Company borrowed an additional $300,000 from Spotless
5
<PAGE>
for working capital requirements. These borrowings bear interest at a rate
equal to the London Interbank Offering Rate ("LIBOR") plus an additional 1%.
3. PROVISION FOR INCOME TAXES - No provision or benefit for income taxes was
recorded for the three months ended July 31, 2000 due to a net loss being
incurred. Any deferred tax assets that may have arisen during the period
would have a full valuation allowance provided against such asset.
4. LOSS PER COMMON SHARE - The calculation of basic and diluted loss per
common share was calculated for all periods in accordance with the
requirements of Statement of Financial Accounting Standards No. 128,
"Earnings per Share". The number of shares used in computing basic and
diluted loss per share were 38,456,254 and 14,663,804 shares for the three
months ended July 31, 2000 and 1999, respectively.
5. REVENUE RECOGNITION - In December 1999, the Securities and Exchange
Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"),
"Revenue Recognition in Financial Statements." SAB 101 summarizes certain
of the SEC's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The Company is required to
adopt SAB 101 no later than the fourth quarter of fiscal 2001. The Company
believes that SAB 101 will not affect its results of operations and
financial position.
6. CONTINGENCIES - On November 22, 1999, the SEC accepted the Company's
settlement offer in its "Order Instituting Public Administrative
Proceedings, Making Findings, Imposing Remedial Sanctions and Issuing
Cease-and-Desist Order" (the "Order"). Under the terms of the Order, the
Company neither admitted nor denied any allegations and did not incur any
monetary fines in connection with an investigation of the Company by the
SEC which stemmed from the prior convictions of two of the Company's former
officers for violations of, among other things, the federal securities
laws. The Order required the Company to develop and institute certain
policies, procedures and manuals that improved its corporate governance,
including the adoption of an audit committee charter, a formal conflict of
interest policy and a formal employee handbook. The Order also required the
Company to obtain a secure off site storage facility to store its backup
data files and system software and to make certain reporting disclosures.
The Company has implemented such policies, procedures and manuals, obtained
an off site storage facility and made such disclosures.
In April 1999, an action was commenced in the New York State Supreme
Court, County of Suffolk, under the caption EDWARD TARNAWSKI V. TRADE-WINDS
ENVIRONMENTAL RESTORATION, INC., COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC.,
WINDSWEPT ENVIRONMENTAL GROUP, INC. AND MICHAEL O'REILLY. This is an action
for an alleged breach of employment contract in which the plaintiff claims
damages of approximately $150,000 for lost wages and commissions. The
Company believes that the action is without merit and that any verdict in
favor of the plaintiff would not have a material adverse effect on the
Company's financial condition, results of operations or cash flows.
In November 1997, Trade-Winds Environmental Restoration, Inc.
("Trade-Winds"), a wholly owned subsidiary of the Company, was named as a
third party defendant in an action commenced in the New York State Supreme
Court, County of New York, under the caption NICOLAI GRIB AND VLADISLAV
KAZAROV V. TRADE-WINDS ENVIRONMENTAL RESTORATION, INC. AND GULF INSURANCE
COMPANY, by a class of plaintiffs claiming to be entitled to additional
wages while working for a subcontractor of Trade-Winds. The Company
believes that a verdict in favor of the plaintiff would not have a material
adverse effect on the Company's financial condition, results of operations
or cash flows.
The Company is a 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 Company's consolidated financial position, results of
operations or cash flows.
6
<PAGE>
In January 1996, Laboratory Testing Services, Inc. ("LTS"), a
wholly-owned subsidiary of the Company, 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 the process of liquidation through these bankruptcy proceedings.
Management believes that the Company's financial condition, results of
operations and cash flows will not be materially affected by this
proceeding.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Forward-looking statements - Statements contained in this Quarterly Report on
Form 10-Q include "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking
statements involve known and unknown risks, uncertainties and other factors
which could cause the actual results, performance and achievements, whether
expressed or implied by such forward-looking statements, not to occur or be
realized. Such forward-looking statements generally are based upon the Company's
best estimates 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 market acceptance and amount of sales of the Company's
services,
- the Company's success in increasing revenues and reducing
expenses,
- the frequency and magnitude of environmental disasters or
disruptions resulting in the need for the types of services the
Company provides,
- the extent of the enactment, enforcement and strict
interpretations of laws relating to environmental remediation,
- the competitive environment within the industries in which
the Company operates,
- the Company's ability to raise additional capital,
- the Company's ability to attract and retain qualified personnel,
and
- the other factors and information disclosed and discussed in
other sections of this Quarterly Report on Form 10-Q and
in the Company's Annual Report on Form 10-KSB for the fiscal
year ended April 30, 2000.
Investors 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. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. This discussion should be read in
conjunction with the Consolidated Financial Statements and notes thereto
appearing in Item 1.
RESULTS OF OPERATIONS
Revenue
Total revenues increased by $257,792 or 10% for the three months ended July 31,
2000 ("the 2000 period") to $2,818,802 from $2,561,010 for the three months
ended July 31, 1999 ("the 1999 period"). Revenues in the Company's Trade-Winds
subsidiary increased $62,970 to $2,321,593 in the 2000 period from $2,258,623 in
the 1999 period. The increase in Trade-Winds revenue was primarily attributable
to increases in revenues from environmental remediation/compliance projects of
approximately $760,000 and an increase in construction projects of approximately
$341,000 which were partially offset by decreases in asbestos abatement
projects, emergency spill response and oil tank compliance projects of
approximately $204,000, $515,000 and $222,000, respectively. Revenues in the
Company's North Atlantic Laboratories, Inc. ("NAL") subsidiary increased by
$156,181 to $276,677 in the 2000 period from $120,496 in the 1999 period. The
increase in NAL revenue was primarily
7
<PAGE>
attributable to NAL being awarded a new contract that resulted in sales of
approximately $50,000 and an increase in NAL's direct marketing efforts to
potential customers.
Cost of Revenues
Cost of revenues increased to $2,216,769 in the 2000 period as compared to
$1,767,191 in the 1999 period. The increase of $449,578, or 25%, was
attributable to the increase in sales volume and the increase in employee costs
in anticipation of increased volume which management believes will be
achieved in future periods, primarily with respect to emergency response
projects, although no assurances can be given in that regard. The Company's cost
of revenues consists primarily of labor and labor related costs, insurance,
benefits, bonding and job related insurance, repairs, maintenance, equipment
rental, materials and supplies, disposal costs and depreciation of capital
equipment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $499,756, or 77%, to
$1,151,097 in the 2000 period from $651,341 in the 1999 period, and constituted
approximately 41% and 25% of revenues in the 2000 and 1999 period, respectively.
The increase of $499,756 was primarily a result of increases in marketing and
other advertising costs of approximately $167,000, compensation expense related
to a put option for shares of common stock and stock options held by an officer
of the Company of approximately $158,000, administrative salaries of
approximately $64,000 and bad debt expense of approximately $30,000.
Interest Expense
Interest expense decreased by $98,595, or 54%, in the 2000 period to $83,859
from $182,454 in the 1999 period. The decrease in interest expense was
attributable to replacing a secured credit facility with a lending institution
with proceeds from the Spotless Transaction. The resultant debt facility with
Spotless carries a significantly lower interest rate.
Other Income
Other income increased $35,339 to $35,520 in the 2000 period from $181 in the
1999 period. The increase is attributable to savings realized through
negotiations with vendors to reduce trade payable balances.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 2000, the Company had a stockholders' deficiency of $3,361,883
and an accumulated deficit of $35,151,272. The Company has financed its
operations to date primarily through issuances of debt and equity securities. As
of July 31, 2000, the Company has $243,758 in cash and a working capital deficit
of $922,146. In addition, as of July 31, 2000, the Company was in arrears with
respect to certain sales tax obligations of approximately $115,000 as well as
preferred stock dividends plus interest of approximately $71,000. The Company is
also in arrears with many of its vendors. These factors raise substantial doubt
as to the Company's ability to continue as a going concern. The Company's
financial statements have been prepared assuming that the Company will continue
as a going concern. The financial statements do not contain any adjustments that
might result from the outcome of this uncertainty.
On October 29, 1999, the Company consummated an equity and debt financing
transaction with Spotless that significantly improved the Company's liquidity
and cash position. The Company received $2,500,000 in exchange for equity and
$2,000,000 of debt financing in the Spotless Transaction. These proceeds were
used to repay in full the Company's outstanding balance under a credit facility
and reduce certain outstanding vendor balances. The Spotless Transaction
significantly reduced the Company's cost of capital. However, management
believes the Company will require positive cash flow from operations to meet its
working capital needs over the next twelve months. In the event that positive
cash flow from operations is not generated, the Company may be required to seek
additional financing to meet its working capital needs. The Company currently
has no credit facility for additional borrowing. Management continues to pursue
additional funding sources and is discussing the availability of credit
8
<PAGE>
facilities with various lenders. Revenue growth is expected in new and
existing service areas. The Company continues to strive for improvement in its
gross margin and containment of 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
achieving positive cash flow from operations or obtaining additional financing.
The Company's future cash requirements are expected to depend on numerous
factors, including, but not limited to: (i) the ability to obtain environmental
or related construction contracts, (ii) the ability to generate positive cash
flow from operations, (iii) the ability to raise additional capital or obtain
additional financing, and (iv) economic conditions.
In March and April 2000, the Company borrowed an aggregate of $500,000 from
Spotless for working capital requirements. On September 8, 2000, the Company
borrowed an additional $300,000 from Spotless for working capital requirements.
These borrowings bear interest at a rate equal to LIBOR plus an additional 1%.
The Company believes that an increase in its market share through focused sales
efforts and strategic acquisitions may result in revenue growth and
profitability. In accordance with this strategy, the Company has engaged in
preliminary discussions with several acquisition targets. As of yet, none of
such potential transactions are probable.
CASH FLOW
Cash decreased by $572,802 during the 2000 period primarily as a result of the
net loss incurred after adjusting for non-cash items, reductions in outstanding
vendor obligations, and purchases of fixed assets of approximately $193,000.
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,
business is affected by the timing of large contracts in certain of its service
areas, such as asbestos abatement and construction, as well as the timing of
catastrophes.
9
<PAGE>
Part 2 - OTHER INFORMATION
------------------------
Item 1. Legal Proceedings
-----------------
Reference is hereby made to Note 6 to the Consolidated Financial
Statements in Part I - Item 1 above and to Item 3 of the Company's
Annual Report on Form 10-KSB for the fiscal year ended April 30, 2000
and to the references therein, for a discussion of all material
pending legal proceedings to which the Company or any of its
subsidiaries is party.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
The Company is required to pay quarterly dividends on its Series A
Convertible Preferred Stock, par value $.01 per share (the
"Series A Preferred"), which dividends accrue from the initial date
of issuance of the Series A Preferred, are cumulative and, if not
paid when due, bear interest on the unpaid amount of the past due
dividends at the prime rate published in The Wall Street Journal on
the date the dividend was payable, plus 3%. The Company believes,
however, that it was legally prohibited from paying dividends on its
capital stock due to the provisions of Section 170 of the Delaware
General Corporation Law ("Delaware Law"), which require a company
to pay dividends on its capital stock only out of its capital
surplus or net profits in one of the last two years. The Company
is currently in arrears on its Series A Preferred dividend
payments and interest thereon in the aggregate amount of approximately
$71,000. If the Company fails to make any four consecutive quarterly
dividend payments on the Series A Preferred, the majority in
interest of the holders of the Series A Preferred have the right to
elect an additional director to the Company's Board of Directors, to
serve as a director until such accrued and unpaid dividends have
been paid in full. The Company anticipates that, under Delaware
law, it will be unable to pay its fourth consecutive quarterly
dividend payment on September 15, 2000 to the holders of the
Series A Preferred. There can be no assurance when or if the Company
will make any Series A Preferred dividend payments.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On October 29, 1999, the Company's Board of Directors and Windswept
Acquisition Corporation, a Delaware corporation and wholly owned
subsidiary of Spotless Plastics (USA), Inc. ("Spotless"), the majority
stockholder of the Company, approved an amendment (the "Amendment")
to the Company's Certificate of Incorporation increasing the number
of authorized shares of common stock from 50,000,000 to 100,000,000.
The Amendment shall become effective upon its filing with the Office
of the Secretary of the State of Delaware. Such filing shall be
made not less than twenty (20) days after August 29, 2000, the
date on which the Company transmitted to its stockholders an
Information Statement, filed with the SEC on August 23, 2000, in
compliance with the proxy rules of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), describing the Amendment.
On October 26, 1999, as a result of the Spotless Transaction, the
Company's Board of Directors, pursuant to the By-laws of the
Company, increased the size of the Board of Directors from five
directors to nine directors and accepted, with effect as of October
26, 1999, the resignation of JoAnn O'Reilly as a director of the
Company. The Board of Directors appointed four nominees of Spotless,
Brian S. Blythe, Ronald B. Evans, Peter A. Wilson and Charles L.
Kelly, Jr., as new directors. A fifth nominee of Spotless, John J.
Bongiorno, has been appointed to the Board of Directors of the
Company, effective as of the date which is ten (10) days after the
filing with the SEC and transmission to the stockholders of the
Company of an Information Statement pursuant to Section 14(f)
of the Exchange Act, and Rule 14f-1 promulgated thereunder. The
continuing directors are Michael O'Reilly, Kevin Phillips, Anthony
Towell and Samuel Sadove.
10
<PAGE>
On September 11, 2000, the Company's Board of Directors, pursuant to
the By-laws of the Company, increased the size of the Board of
Directors from nine directors to eleven directors.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
27. Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarterly period
ended July 31, 2000.
11
<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 14, 2000 WINDSWEPT ENVIRONMENTAL GROUP, INC.
By: /s/ Michael O'Reilly
------------------------------------
MICHAEL O'REILLY,
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Charles L. Kelly, Jr.
------------------------------------
CHARLES L. KELLY, JR.
Chief Financial Officer
(Principal Financial Officer)
12
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
27 Financial Data Schedule
13
