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 DECEMBER 31, 2002, 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
incorporation or organization) Identification No.)
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
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes No X
--- ---
The number of shares of Common Stock, par value $.0001, outstanding on
January 31, 2003 was 77,936,358.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
WINDSWEPT ENVIRONMENTAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND JULY 2, 2002
December 31, July 2,
2002 2002
(Unaudited)
--------------- ---------------
ASSETS:
CURRENT ASSETS:
Cash $ 271,823 $ 399,679
Accounts receivable, net of allowance for doubtful accounts of $1,014,058 and $909,029, 7,175,301 7,519,203
respectively
Inventories 227,327 296,474
Costs and estimated earnings in excess of billings on uncompleted contracts 498,165 501,424
Prepaid expenses and other current assets 504,382 144,274
-------------- --------------
Total current assets 8,676,998 8,861,054
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $4,819,696
and $4,550,006, respectively 1,902,550 1,144,369
OTHER ASSETS 235,128 207,115
-------------- --------------
TOTAL $ 10,814,676 $ 10,212,538
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 1,540,914 $ 1,060,074
Accrued expenses 1,201,588 1,740,093
Short-term notes payable to related party 1,202,043 200,000
Billings in excess of cost and estimated earnings on uncompleted contracts 47,527 193,251
Accrued payroll and related fringes 563,138 551,091
Convertible notes payable to related party - 100,000
Current portion of long-term debt 177,653 71,265
Income taxes payable - 450,820
Other current liabilities 462,205 167,987
-------------- --------------
Total current liabilities 5,195,068 4,534,581
-------------- --------------
LONG-TERM DEBT 286,123 63,703
-------------- --------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE COMMON STOCK 779,306 941,871
-------------- --------------
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK, $.01 par value; 1,300,000 shares
authorized; 1,300,000 shares outstanding at December 31, 2002 and July 2, 2001 1,300,000 1,300,000
-------------- --------------
STOCKHOLDERS' EQUITY :
Series B convertible preferred stock, $.01 par value; 50,000 shares authorized; 0 shares
outstanding at December 31, 2002 and July 2, 2002 - -
Nondesignated preferred stock, no par value; 8,650,000 shares authorized; 0 shares - -
outstanding
Common stock, $.0001 par value; 150,000,000 shares authorized; 77,936,358 shares
outstanding at December 31, 2002 and July 2, 2002. 7,794 7,794
Additional paid-in-capital 34,039,017 34,078,017
Accumulated deficit (30,792,632) (30,713,428)
-------------- --------------
Total stockholders' equity 3,254,179 3,372,383
-------------- --------------
TOTAL $ 10,814,676 $ 10,212,538
============== ==============
See notes to consolidated financial statements.
2
WINDSWEPT ENVIRONMENTAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Thirteen Weeks Ended Twenty-Six Weeks Ended
--------------------------------- ---------------------------------
December 31, January 1, December 31, January 1,
2002 2002 2002 2002
-------------- -------------- -------------- --------------
Revenues $ 5,864,047 $ 13,000,553 $ 10,457,023 $ 20,735,627
Cost of revenues 4,575,194 7,676,358 8,109,670 12,996,891
-------------- -------------- -------------- --------------
Gross profit 1,288,853 5,324,195 2,347,353 7,738,736
-------------- -------------- -------------- --------------
Operating expenses:
Selling, general and administrative expenses 1,562,774 1,356,966 2,586,558 2,331,116
(Benefit) expense related to variable accounting
treatment for officer options (81,344) 1,127,575 (162,565) 1,368,020
-------------- -------------- -------------- --------------
Total operating expenses 1,481,430 2,484,541 2,423,993 3,699,136
-------------- -------------- -------------- --------------
(Loss) income from operations (192,577) 2,839,654 (76,640) 4,039,600
-------------- -------------- -------------- --------------
Other expense (income):
Interest expense 27,021 120,807 35,190 195,282
Other, net (19,130) (660) (23,309) (10,004)
-------------- -------------- -------------- --------------
Total other expense 7,891 120,147 11,881 185,278
-------------- -------------- -------------- --------------
(Loss) income before (benefit) provision for income
taxes (200,468) 2,719,507 (88,521) 3,854,322
(Benefit) provision for income taxes (17,317) 1,710,403 (9,317) 2,082,065
-------------- -------------- -------------- --------------
Net (loss) income (183,151) 1,009,104 (79,204) 1,772,257
Dividends on preferred stock (19,500) (410,219) (39,000) (429,719)
-------------- -------------- -------------- --------------
Net (loss) income attributable to common shareholders
$ (202,651) $ 598,885 $ (118,204) $ 1,342,538
============== ============== ============== ==============
Basic and diluted net (loss) income per common share:
Basic ($.00) $.01 ($.00) $.03
============== ============== ============== ==============
Diluted ($.00) $.01 ($.00) $.02
============== ============== ============== ==============
Weighted average number of common shares outstanding:
Basic 77,936,358 58,653,415 77,936,358 48,511,610
============== ============== ============== ==============
Diluted 77,936,358 86,759,104 77,936,358 85,736,529
============== ============== ============== ==============
See notes to consolidated financial statements.
3
WINDSWEPT ENVIRONMENTAL GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
Common Stock Additional
Number of Par Paid-in Accumulated
Shares Value Capital Deficit Total
------ ----- ------- ------- -----
Balance at July 3, 2002 77,936,358 $7,794 $34,078,017 $(30,713,428) $3,372,383
Dividends on Series A preferred stock - - (39,000) - (39,000)
Net loss - - - (79,204) (79,204)
---------- ------- ------------ ------------- -----------
Balance at December 31, 2002 77,936,358 $7,794 $34,039,017 $(30,792,632) $3,254,179
========== ====== ============ ============= ===========
See notes to consolidated financial statements.
4
WINDSWEPT ENVIRONMENTAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Twenty-Six Weeks Ended
--------------------------------
December 31, January 1,
2002 2002
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (79,204) $ 1,772,257
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating
activities:
Depreciation and amortization 269,690 342,801
Provision for doubtful accounts 105,029 154,100
Compensation (benefit) expense related to officer options and redeemable common
Stock (162,565) 1,368,020
Changes in operating assets and liabilities:
Accounts receivable 238,873 (2,490,475)
Inventories 69,147 (70,605)
Costs and estimated earnings in excess of billings on uncompleted contracts 3,259 231,448
Prepaid and other current assets (360,108) (216,790)
Other assets (28,013) 39,039
Accounts payable and accrued expenses (57,665) 619,095
Accrued payroll and related fringes 12,047 616,838
Income taxes payable (450,820) 988,664
Other current liabilities 294,218 57,301
Billings in excess of costs and estimated earnings on uncompleted contracts (145,724) (348,302)
-------------- --------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (291,836) 3,063,391
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (1,027,871) (399,144)
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (1,027,871) (399,144)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (63,022) (43,363)
Proceeds from long-term debt 391,830 89,294
Proceeds from exercise of stock options - 74,296
Repayment of convertible note to related party (100,000) -
Payment of preferred stock dividends (39,000) -
Proceeds from short-term notes payable 1,425,000 1,750,000
Repayments of short-term notes payable (422,957) (2,750,000)
-------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,191,851 (879,773)
-------------- --------------
NET (DECREASE) INCREASE IN CASH (127,856) 1,784,474
CASH - BEGINNING OF PERIOD 399,679 323,732
-------------- --------------
CASH - END OF PERIOD $ 271,823 $ 2,108,206
============== ==============
Cash paid during the period for:
Interest $ 24,506 $ 62,355
============== ==============
Taxes $ 651,621 $ 1,054,620
============== ==============
Non cash financing activities:
Issuance of preferred stock dividend $ - $ 429,719
============== ==============
Conversion of accrued and unpaid interest to common stock $ - $ 331,951
============== ==============
See notes to consolidated financial statements.
5
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 on a consolidated basis as of December 31, 2002, the results
of operations for the thirteen and twenty-six weeks ended December 31, 2002
and January 1, 2002 and cash flows for the twenty-six weeks ended December
31, 2002 and January 1, 2002, have been included. Certain prior period
amounts have been reclassified to conform to the December 31, 2002
presentation.
The results for the thirteen and twenty-six weeks ended December 31,
2002 and January 1, 2002 are not necessarily indicative of the results
for an entire year. These unaudited consolidated financial statements
should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto included in the Company's Form
10-K for the fiscal year ended July 2, 2002.
2. LIQUIDITY AND BUSINESS RISKS - As of December 31, 2002, the Company had a
cash balance of $271,823, working capital of $3,481,930 and stockholders'
equity of $3,254,179. Historically, the Company has financed its operations
primarily through issuance of debt and equity securities, through
short-term borrowings from its majority shareholder, Spotless, and
through cash generated from operations. Based on the Company's experience
and for the reasons set forth below, in the opinion of management, the
Company expects to have sufficient working capital to fund its operations
on an ongoing basis, including for at least the next twelve months.
However, economic, market and other conditions may affect the Company's
cash flows and liquidity. In the event that the Company is unable to
generate sufficient positive cash flow from operations, the Company may
seek additioanl financing from Spotless, although Spotless is under no
legal obligation to provide such funds. The Company currently has no
credit facility for additional borrowing.
During the twenty-six weeks ended December 31, 2002, in order to address
the Company's cash flow and operational concerns, including funding the
payment of income taxes and start up costs relating to a large mold
remediation project in Hawaii, the Company borrowed $1,425,000 from
Spotless. During the twenty-six weeks ended December 31, 2002, the Company
repaid $422,957 to Spotless. All borrowings from Spotless bear interest at
the London Interbank Offering Rate ("LIBOR") plus 1 percent and are
secured by all of the Company's assets and are payable on demand. As of
December 31, 2002, the Company owed Spotless $1,202,043 on such
short-term loans to fund working capital. Subsequent to December 31, 2002,
the Company has repaid $402,043 to Spotless, leaving an $800,000 balance
owed to Spotless as of February 14, 2003.
During the twenty-six weeks ended December 31, 2002, the Company repaid
$100,000 principal amount of 12% convertible notes to a director of the
Company.
The Company's future cash requirements are expected to depend on numerous
factors, including, but not limited to: (i) its ability to obtain
environmental or related construction contracts, (ii) its ability to
generate positive cash flow from operations, and the extent thereof, (iii)
its ability to raise additional capital or obtain additional financing
to the extent necessary, and (iv) economic and industry conditions.
The Company anticipates revenue growth in new and existing service areas
and continues to bid on large projects, though there can be no assurance
that any of the Company's bids will be accepted. The Company expects to
generate positive cash flow from operations to meet its working capital
needs on an ongoing basis, including for at least the next twelve months.
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 to the extent necessary. The Company has taken several steps to
improve its operating results and cash flows,
6
including: (a) increasing its collection efforts with insurance companies
to accelerate the flow of payments to the Company on reconstruction
projects; (b) applying for advance payments to fund the purchase of
materials and the payment of subcontractors and large staffs of employees
on larger projects; (c) expanding its marketing efforts and staff to
increase the Company's industry prominence, attract more bidding
opportunities and projects and broaden the Company's customer base; (d)
attempting to improve its gross margins and control its selling, general
and administrative expenses. Management expects these efforts to improve
its results of operaitons, including by producing a more steady flow of
small to medium size projects and by increasing the Company's exposure to
those customers that control larger, generally higher gross margin
projects, though no assurance can be given that these actions will be
successful. In the event these efforts do not result in sufficient
positive cash flow from operations, the Company may be required to seek
additional financing to meet its working capital needs, including possibly
from Spotless. Management also continues to pursue additional funding
sources, including possible equipment financing that would be expected to
reduce the amount of cash expended on equipment purchases, which could
then be used for other purposes.
3. (BENEFIT) PROVISION FOR INCOME TAXES - The (benefit) provision for
income taxes for the thirteen and twenty-six weeks ended December 31, 2002
and January 1, 2002 consists of the following:
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
December 31, January 1, December 31, January 1,
2002 2002 2002 2002
---- ---- ---- ----
Federal - current $ (21,413) $1,207,259 $ (15,413) $1,469,590
State - current 4,096 503,144 6,096 612,475
----------- ----------- ---------- -----------
Total $ (17,317) $1,710,403 $ ( 9,317) $2,082,065
=========== =========== ========== ===========
The effective rate for income taxes differs from the statutory rates
primarily as a result of the utilization of federal and state net operating
loss carryforwards of approximately $500,000 in the twenty-six weeks ending
January 1, 2002 and the nondeductible nature of the expense (benefit)
related to the variable accounting treatment of officer options for which
there is a 100% valuation allowance. The Company has a 100% valuation
allowance against deferred tax assets because management believes that it
is more likely than not that such deferred tax assets will not be realized.
At December 31, 2002, the Company had approximately $1,124,000 in net
operating loss carryforwards for tax purposes that expire at various dates
through 2020. Due to Spotless' acquisition of greater than 50% ownership in
October 1999, the Company is limited to utilizing $68,000 of net operating
loss carryforwards per annum.
7
4. INCOME PER COMMON SHARE - The calculation of basic and diluted income 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 following table sets forth the computation of the basic and diluted net
income per share for the thirteen and twenty-six weeks ended December 31,
2002 and January 1, 2002, respectively:
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------------------- -------------------------------
December 31, January 1, December 31, January 1,
2002 2002 2002 2002
---- ---- ---- ----
Numerator:
Net income (loss) attributable to
common shareholders ($202,651) $ 598,885 ($118,204) $ 1,342,538
Add interest on convertible notes - 81,512 - 93,124
-------------- -------------- -------------- --------------
($202,651) $680,397 ($118,204) $ 1,435,662
============== ============== ============== ==============
Denominator:
Share reconciliation:
Shares used for basic income
per share 77,936,358 58,653,415 77,936,358 48,511,610
Effect of dilutive items:
Stock options - 7,684,798 - 3,796,317
Convertible securitie - 20,420,891 - 30,428,602
-------------- -------------- -------------- --------------
Shares used for dilutive income
per share 77,936,358 86,759,104 77,936,358 85,736,529
============== ============== ============== =============
Net income per share:
Basic ($.00) $.01 ($.00) $.03
Diluted ($.00) $.01 ($.00) $.02
The dilutive loss per share computation for the thirteen and twenty-six
week periods ended December 31, 2002 excludes approximately 4,805,000 and
4,874,000 shares, respectively, related to employee stock options and
approximately 260,000 and 418,000 shares, respectively, related to
convertible notes because the effect of including them would be
anti-dilutive. For all periods presented, 1,300,000 shares
of common stock issuable upon the exercise of the Series A Redeemable
Convertible Preferred Stock was excluded from diluted earnings per share
because the effect of including them would be anti-dilutive.
5. CONTINGENCIES - On October 12, 2001, Trade-Winds Environmental
Restoration, Inc. ("Trade-Winds"), a wholly-owned subsidiary of the
Company, commenced an action in the New York State Supreme Court, County of
New York, claiming that Trade-Winds is entitled to approximately $1,060,000
of contractual billings relating to a large mold remediation project. In
addition to denying an obligation to pay the amount claimed, the defendants
asserted a counterclaim against Trade-Winds for $389,439. On January 7,
2003, Trade-Winds received $550,000 in full settlement of this action. The
court has ordered that the record of this action be sealed.
In November 1997, Trade-Winds 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 will not have a material adverse effect on the Company's
consolidated financial statements.
The Company is a party to other litigation matters and claims that 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 statements.
8
6. RELATED PARTY TRANSACTIONS - On November 16, 2001, the Company exchanged
$1,700,000 of short-term notes payable for a demand promissory note payable
to Spotless that is secured by the Company's assets and the assets of its
subsidiaries, pursuant to amendments to existing security agreements
between each of the Company and its subsidiaries and Spotless. The
promissory note had an original principal amount of $1,700,000 and accrues
interest at the rate of LIBOR plus one percent (1%) per annum. Spotless
may, but is under no obligation to, lend additional amounts to the Company
under this secured promissory note. As of December 31, 2002, the Company
owed Spotless $1,202,043 under this promissory note. Subsequent to December
31, 2002, the Company repaid $402,043 to Spotless.
In the twenty-six weeks ended December 31, 2002, the Company repaid
$100,000 principal amount of 12% convertible notes to a director of the
Company.
7. RECENT ACCOUNTING PRONOUNCEMENTS - In June 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142
addresses financial accounting and reporting for acquired goodwill and
other intangible assets. Under SFAS No. 142, goodwill and some intangible
assets will no longer be amortized, but rather reviewed for impairment on a
periodic basis. This Statement was required to be adopted by the Company
for the fiscal year beginning July 2, 2002 and applied to all goodwill and
other intangible assets recognized in its financial statements at that
date. Impairment losses for goodwill and certain intangible assets that
arose due to the initial application of this Statement should be reported
as resulting from a change in accounting principle. The adoption of SFAS
No. 142 did not have a material impact on the Company's consolidated
financial statements.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". The standard requires entities to record the fair
value of a liability for an asset retirement obligation in the period in
which it is incurred. When the liability is initially recorded, the entity
capitalizes a cost by increasing the carrying amount of the related
long-lived asset. Over time, the liability is accreted to its present value
each period, and the capitalized cost is depreciated over the useful life
of the related asset. Upon settlement of the liability, an entity either
settles the obligation for its recorded amount or incurs a gain or loss
upon settlement. The standard is effective for fiscal years beginning after
June 15, 2002. The adoption of SFAS 143 did not have a material impact on
the Company's consolidated financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 replaces SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 144 requires that long-lived
assets be measured at the lower of carrying amount or fair value less cost
to sell, whether reported in continuing operations or in discontinued
operations. Therefore, discontinued operations will no longer be measured
at net realizable value or include amounts for operating losses that have
not yet occurred. SFAS No. 144 also broadens the reporting of discontinued
operations to include all components of an entity with operations that can
be distinguished from the rest of the entity and that will be eliminated
from the ongoing operations of the entity in a disposal transaction. The
provisions of SFAS No. 144 are effective for financial statements issued
for fiscal years beginning after December 15, 2001. The adoption of SFAS
144 did not have a material impact on the Company's consolidated financial
statements.
In April 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS 145"). SFAS 145 rescinds SFAS 4, "Reporting Gains and
Losses from Extinguishment of Debt", and an amendment of that Statement,
SFAS 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements". SFAS 145 also rescinds SFAS 44, "Accounting for Intangible
Assets of Motor Carriers". SFAS 145 amends SFAS 13, "Accounting for
Leases", to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. SFAS 145 also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. Certain provisions
of this statement related to
9
the classification of gains and losses from the extinguishment of debt
are required to be adopted by the Company beginning with the year
ended July 1, 2003. All other provisions are required to be adopted
after May 15, 2002 and early application is encouraged. The adoption
of SFAS No. 145 is not expected to have a material impact on the Company's
consolidated financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146
addresses financial accounting and reporting for costs associated with exit
or disposal activities and nullifies EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (Including Certain Costs Incurred in a Restructuring").
SFAS 146 requires recognition of a liability for a cost associated with an
exit or disposal activity when the liability is incurred, as opposed to
when the entity commits to an exit plan under EITF 94-3. This statement is
effective for exit or disposal activities initiated after December 31,
2002. The adoption of SFAS 146 is not expected to have a material impact on
the Company's consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement
No. 123" ("SFAS 148"). SFAS No. 148 amends SFAS No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition for
a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends
the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect
of the method used on reported results. The transition guidance and annual
disclosure provisions of SFAS No. 148 are effective for financial
statements issued for fiscal years ending after December 15, 2002. The
interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after
December 15, 2002. The Company is currently evaluating the impact
of the adoption of SFAS 148 on its consolidated financial statements.
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 Report on Form 10-K for the fiscal
year ended July 2, 2002.
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
10
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.
CRITICAL ACCOUNTING POLICIES
Management's discussion and analysis of its financial position and results
of operations are based upon the Company's unaudited consolidated financial
statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The
preparation of these unaudited financial statements requires management to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosure of contingent
assets and liabilities. Actual results could differ from those estimates.
Management believes that the critical accounting policies and areas that
require the most significant judgments and estimates to be used in the
preparation of the unaudited financial statements are accounting for
contracts, allowance for doubtful accounts and the valuation allowance
against deferred tax assets.
Contract Accounting - Revenue derived from services provided to customers
over periods of less than one month is recognized at the completion of the
related contracts. Revenue from firm fixed price contracts that extend over
periods of one month or more is recognized using the
percentage-of-completion method, measured by the percentage of costs
incurred to date compared to estimated total costs for each contract.
Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are determined. Changes in job performance, job
conditions, estimated profitability, the effect of contract penalty
provisions and final contract settlements may result in revisions to
estimates of costs and income and are recognized in the period in which the
revisions are determined. Revenues from time and material contracts that
extend over a period of more than one month are recognized as services are
performed.
Allowance for Doubtful Accounts - The Company maintains an allowance for
doubtful trade accounts receivable for estimated losses resulting from the
inability of its customers to make required payments. In determining
collectibility, the Company reviews available customer financial
information including public filings and credit reports and also consults
legal counsel to assist in determining collectibility. When it is deemed
probable that a specific customer account is uncollectible, that balance is
included in the reserve calculation. Actual results could differ from these
estimates under different assumptions.
Deferred Tax Asset Valuation Allowance - The Company records a valuation
allowance to reduce its deferred tax assets to the amount that is more
likely than not to be realized. Due to the Company's prior history of
losses, the Company has recorded a full valuation allowance against its net
deferred tax assets as of December 31, 2002. The Company currently provides
for income taxes only to the extent that it expects to pay cash taxes for
current income. Should the Company be profitable in the future at levels
which cause management to conclude that is more likely than not that it
will realize all or a portion of the deferred tax assets, the Company would
record the estimated net realizable value of the deferred tax assets at
that time and would then provide for income taxes at its combined federal
and state effective rates.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED DECEMBER 31, 2002 AND JANUARY 1, 2002
Revenue
Total revenues for the thirteen weeks ended December 31, 2002 decreased by
$7,136,506, or approximately 55%, to $5,864,047 from $13,000,553 for the
thirteen weeks ended January 1, 2002. The decrease in revenues of
$7,136,506 was primarily attributable to approximately $9,900,000 related
to non-recurring remediation work performed in the thirteen weeks ended
January 1, 2002 in the vicinity of the World Trade Center as a result of
the terrorist attack on September 11, 2001 partially offset by revenue from
a mold remediation project in Hawaii of $2,000,000 and an increase in
insurance reconstruction revenues of approximately $800,000 in the thirteen
weeks ended December 31, 2002.
11
Cost of Revenues
Cost of revenues decreased $3,101,164 to $4,575,194 for the thirteen weeks
ended December 31, 2002 as compared to $7,676,358 for the thirteen weeks
ended January 1, 2002. This 40% decrease was primarily attributable to the
labor costs which were required for the thirteen weeks ended January 1,
2002 period associated with non-recurring remediation work performed in the
vicinity of the World Trade Center. Gross profit decreased $4,035,342 to
$1,288,853 or 22% of total revenue, for the thirteen weeks ended December
31, 2002 from $5,324,195, or 40% of total revenue, for the thirteen weeks
ended January 1, 2002. The decrease in gross profit was primarily
attributable to the absence of World Trade Center related work, which
produced higher margins for the thirteen weeks ended January 1, 2002. 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 $205,808 to
$1,562,774 for the thirteen weeks ended December 31, 2002 from $1,356,966
for the thirteen weeks ended January 1, 2002 and constituted approximately
27% and 10% of revenues, respectively. The increase of $205,808 was
primarily attributable to increases in sales and marketing expenses of
$125,000 and the provision for doubtful accounts of $99,000 as a result of
the settlement of litigation.
(Benefit) Expense Related to Variable Accounting Treatment for Officer
Options
Under the terms of an employment agreement with the Company and a separate
agreement with Spotless, the Company's President and Chief Executive
Officer may sell to the Company, or in certain circumstances to Spotless,
all shares of common stock of the Company held by him and all shares of
common stock underlying vested options to purchase shares of common stock
of the Company held by him upon the occurrence of certain events. The
benefit related to variable accounting treatment for officer options was
$81,334 for the thirteen weeks ended December 31, 2002 compared to an
expense of $1,127,575 for the thirteen weeks ended January 1, 2002. This
was due to a decrease in the market price of the Company's common stock
that was partially offset by an increase in the number of vested options
outstanding. Due to the terms of the options, changes in the market price
of the Company's common stock, in either direction, result in a
corresponding expense or benefit.
Interest Expense
Interest expense decreased by $93,786, or 78%, to $27,021 for the thirteen
weeks ended December 31, 2002 from $120,807 for the thirteen weeks ended
January 1, 2002. The decrease in interest expense was primarily
attributable to reductions in convertible debt of $2,780,000, of which
$2,000,000 was converted by Spotless in November 2001, offset by increased
short-term borrowings from Spotless of $1,000,000, to fund a mold
remediation project in Hawaii.
(Benefit) Provision for Income Taxes
The (benefit) provision for income taxes decreased by $1,727,720 to a
benefit of $17,317 for the thirteen weeks ended December 31, 2002 from
$1,710,403 for the thirteen weeks ended January 1, 2002. The decrease was
primarily attributable to the net loss for the thirteen weeks ended
December 31, 2002.
Net Income (Loss)
Net income decreased by $1,192,255 to a net loss of $183,151 for the
thirteen weeks ended December 31, 2002 from net income of $1,009,104 for
the thirteen weeks ended January 1, 2002. The decrease was the result of
the factors discussed above.
12
TWENTY-SIX WEEKS ENDED DECEMBER 31, 2002 AND JANUARY 1, 2002
Revenue
Total revenues for the twenty-six weeks ended December 31, 2002 decreased
by $10,278,604, or approximately 50%, to $10,457,023 from $20,735,627 for
the twenty-six weeks ended January 1, 2002. The decrease in revenues of
$10,276,509 was primarily attributable to approximately $12,400,000 related
to non-recurring remediation work performed in the twenty-six weeks ended
January 1, 2002 in the vicinity of the World Trade Center as a result of
the terrorist attack on September 11, 2001 and a decrease in the Company's
North Atlantic Laboratories subsidiary of approximately $200,000 partially
offset by increases in mold remediation of approximately $1,300,000 and
insurance reconstruction revenues of approximately $1,300,000 for the
twenty-six weeks ended December 31, 2002.
Cost of Revenues
Cost of revenues decreased $4,887,221 to $8,109,670 for the twenty-six
weeks ended December 31, 2002 as compared to $12,996,891 for the twenty-six
weeks ended January 1, 2002. This 38% decrease was primarily attributable
to the labor and subcontractor costs which were required for the twenty-six
weeks ended January 1, 2002 period associated with non-recurring
remediation work performed in the vicinity of the World Trade Center. Gross
profit decreased $5,391,383 to $2,347,353 or 22% of total revenue, for the
twenty-six weeks ended December 31, 2002 from $7,738,736, or 37% of total
revenue, for the twenty-six weeks ended January 1, 2002. The decrease in
gross profit was primarily attributable to the absence of World Trade
Center related work, which produced higher margins for the twenty-six weeks
ended January 1, 2002. 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 $255,442 to
$2,586,558 for the twenty-six weeks ended December 31, 2002 from $2,331,116
for the twenty-six weeks ended January 1, 2002 and constituted
approximately 25% and 11% of revenues, respectively. The increase of
$255,442 was primarily attributable to increases in sales and marketing
expenses of approximately $265,000.
(Benefit) Expense Related to Variable Accounting Treatment for Officer
Options
Under the terms of an employment agreement with the Company and a separate
agreement with Spotless, the Company's President and Chief Executive
Officer may sell to the Company, or in certain circumstances to Spotless,
all shares of common stock of the Company held by him and all shares of
common stock underlying vested options to purchase shares of common stock
of the Company held by him upon the occurrence of certain events. The
benefit related to variable accounting treatment for officer options was
$162,565 for the twenty-six weeks ended December 31, 2002 compared to an
expense of $1,368,020 for the twenty-six weeks ended January 1, 2002. This
was due to a decrease in the market price of the Company's common stock
that was partially offset by an increase in the number of vested options
outstanding. Due to the terms of the options, changes in the market price
of the Company's common stock, in either direction, result in a
corresponding expense or benefit.
Interest Expense
Interest expense decreased by $160,092, or 82%, to $35,190 for the
twenty-six weeks ended December 31, 2002 from $195,282 for the twenty-six
weeks ended January 1, 2002. The decrease in interest expense was primarily
attributable to reductions in convertible debt of $2,780,000, of which
$2,000,000 was converted by Spotless in November 2001, offset by increased
short-term borrowings from Spotless of $1,000,000, to fund a mold
remediation project in Hawaii.
13
(Benefit) Provision for Income Taxes
The (benefit) provision for income taxes decreased by $2,091,382 to a
benefit of $9,317 for the twenty-six weeks ended December 31, 2002 from
$2,082,065 for the twenty-six weeks ended January 1, 2002. The decrease was
primarily attributable to the net loss for the twenty-six weeks ended
December 31, 2002.
Net Income (Loss)
Net income decreased by $1,851,461 to a net loss of $79,204 for the
twenty-six weeks ended December 31, 2002 from net income of $1,772,257 for
the twenty-six weeks ended January 1, 2002. The decrease was the result of
the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2002, the Company had a cash balance of $271,823,
working capital of $3,481,930 and stockholders' equity of $3,254,179.
Historically, the Company has financed its operations primarily through
issuance of debt and equity securities, through short-term borrowings from
its majority shareholder, Spotless and through cash generated from
operations. Based on the Company's experience and for the reasons set
forth below, in the opinion of management, the Company expects to have
sufficient working capital to fund its operations on an ongoing basis,
including for at least the next twelve months. However, economic, market
and other conditions may affect the Company's cash flows and liquidity.
In the event that the Company is unable to generate sufficient positive
cash flow from operations, the Company may seek additional financing from
Spotless, although Spotless is under no legal obligation to provide such
funds. The Company currently has no credit facility for additional
borrowing.
During the twenty-six weeks ended December 31, 2002, in order to address
the Company's cash flow and operational concerns, including funding the
payment of income taxes and start up costs relating to a large mold
remediation project in Hawaii, the Company borrowed $1,425,000 from
Spotless. During the twenty-six weeks ended December 31, 2002, the Company
repaid $422,957 to Spotless. All borrowings from Spotless bear interest at
the London Interbank Offering Rate ("LIBOR") plus 1 percent and are secured
by all of the Company's assets and are payable on demand. As of December
31, 2002, the Company owed Spotless $1,202,043 on such short-term loans to
fund working capital. Subsequent to December 31, 2002, the Company repaid
$402,043 to Spotless, leaving an $800,000 balance owned to Spotless as of
February 14, 2003.
During the twenty-six weeks ended December 31, 2002, the Company repaid
$100,000 principal amount of 12% convertible notes to a director of the
Company.
The Company's future cash requirements are expected to depend on numerous
factors, including, but not limited to: (i) its ability to obtain
environmental or related construction contracts, (ii) its ability to
generate positive cash flow from operations, and the extent thereof, (iii)
its ability to raise additional capital or obtain additional financing
to the extent necessary, and (iv) economic and industry conditions. The
Company anticipates revenue growth in new and existing service areas
and continues to bid on large projects, though there can be no assurance
that any of the Company's bids will be accepted. The Company expects to
generate positive cash flow from operations to meet its working capital
needs on an ongoing basis, including for at least the next twelve months.
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 sufficient positive cash flow from operations or obtaining
additional financing to the extent necessary. The Company has taken
several steps to improve its operating results and cash flows, including:
(a) increasing its collection efforts with insurance companies to
accelerate the flow of payments to the Company on reconstruction projects;
(b) applying for advance payments to fund the purchase of materials and the
payment of subcontractors and large staffs of employees on larger projects;
(c) expanding its marketing efforts and staff to increase the Company's
industry prominence, attract more bidding opportunities and projects and
broaden the Company's customer base; (d) attempting to improve its gross
margins and control its selling, general and administrative expenses.
Management expects these efforts to improve its results of operations,
including by producing a more steady flow of small to medium size projects
and by increasing the Company's exposure to those customers that control
larger, generally higher gross margin projects, though no assuarnce can be
given that these actions will be successful. In the event these efforts
do not result in sufficient positive cash flow from operations, the Company
may be required to seek additional
14
financing to meet its working capital needs, including possibly from
Spotless. Managment also continues to pursue additional funding sources,
including possible equipment financing that would be expected to reduce
the amount of cash expended on equipment purchases, which could then be
used for other purposes.
The table below summarizes aggregate maturities of future minimum lease
payments under noncancelable operating leases as of December 31, 2002:
Total 1 Year 2-3 Years 4-5 Years
Operating Leases $1,622,000 $352,000 $745,000 $525,000
CASH FLOW
Net cash used by operating activities was $291,836 for the twenty-six weeks
ended December 31, 2002. Accounts receivable decreased by $238,873.
Accounts payable and accrued expenses and accrued payroll decreased
$45,618. Income taxes payable decreased $450,820 as a result of the
decrease in taxable income from that in the prior year ended July 2, 2002
and the filing of the appropriate tax returns and making the prescribed
payments. Cash used for capital expenditures was $1,027,871during the
twenty-six weeks ended December 31, 2002, primarily to fund the purchase of
commercial drying equipment.
During the twenty-six weeks ended December 31, 2002, in order to fund the
mold remediation project in Hawaii, the Company borrowed $1,425,000 from
Spotless and then repaid $422,957 of such amount. In addition, the Company
repaid an additional $402,043 to Spotless subsequent to December 31, 2002.
All current borrowings from Spotless bear interest at LIBOR plus 1 percent
(3.07% at December 31, 2002) and are secured by all of the Company's
assets.
INFLATION
Inflation has not had a material impact on the Company's operations over
the past three fiscal years or during the twenty-six weeks ended December
31, 2002.
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 and mold abatement and construction, as well
as the timing of catastrophes.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to potential loss from market risks that may occur
as a result of changes in the market price of the Company's common stock
(with respect to the variable accounting treatment of a put option for
shares of common stock and common stock options held by an officer of the
Company) and as a result of changes in interest rates (primarily with
respect to its debt obligations to Spotless). There have been no material
changes to the Company's market risk as reported in the Company's Annual
Report on Form 10-K for the period ended July 2, 2002.
Item 4. Controls and Procedures
Our principal executive and financial officers have concluded, based on
their evaluation as of a date within 90 days before the filing of this
10-Q, that our disclosure controls and procedures under Rule 13a-14 of the
Securities Exchange Act of 1934 are effective to ensure that information we
are required to disclose in the reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms, and include controls
and procedures designed to ensure that information we are required to
disclose in such reports is accumulated and communicated to management,
including our principal executive and officers, as appropriate to allow
timely decisions regarding required disclosure. Subsequent to our
evaluation, there were no significant changes in internal controls or other
factors that could significantly affect these internal controls.
15
PART 2 - OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings
------ -----------------
Reference is hereby made to Note 5 to the Consolidated
Financial Statements in Part I - Item 1 above and to Item 3 of
the Company's Annual Report on Form 10-K for the year ended
July 2, 2002 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
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The 2002 Annual Meeting of Stockholders of the Company was
held on December 16, 2002, at which the following matter was
voted upon and adopted by the votes indicated:
To elect nine directors to the Board of Directors to serve
until the next annual meeting of stockholders, unless any such
director shall resign, become disqualified, disabled or
otherwise removed from office. The names of the directors and
votes cast in favor of their election and votes withheld are
as follows:
Nominee For Withheld
------- --- --------
Michael O'Reilly 72,365,767 12,600
Charles L. Kelly, Jr. 72,359,207 19,160
Peter A. Wilson 72,362,267 16,100
Brian S. Blythe 72,364,517 13,850
John J. Bongiorno 72,364,517 13,850
Ronald B. Evans 72,364,517 13,850
Samuel Sadove 72,376,157 2,210
Anthony Towell 72,374,157 4,210
Dr. Kevin Phillips 72,376,157 2,210
Item 5. Other Information
-----------------
Audit Fees. Deloitte & Touche LLP provided audit services to
to the Company consisting of the audit of the Company's
consolidated financial statements for the fiscal year ended
July 2, 2002 and reviews of the financial statements included
in the Company's Forms 10-Q for the fiscal year ended July 2,
2002. The fees billed by Deloitte & Touche LLP for these
services totaled $132,000.
Financial Information System Designed and Implementation Fees;
All Other Fees. Except as noted in the preceding paragraph,
Deloitte & Touche LLP did not perform any services for the
Company during the fiscal year ended July 2, 2002.
16
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
99.1 Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350
99.2 Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
thirteen week period ended December 31, 2002
17
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: February 14, 2003
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)
18
CERTIFICATION
-------------
I, Michael O'Reilly, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Windswept
Environmental Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 14, 2003 /s/ Michael O'Reilly
-------------------------------------
Michael O'Reilly
President and Chief Executive Officer
19
CERTIFICATION
-------------
I, Charles L. Kelly Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Windswept
Environmental Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 14, 2003 /s/ Charles L. Kelly, Jr.
-----------------------------
Charles L. Kelly Jr.
Chief Financial Officer
20