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 APRIL 1, 2003, 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
April 30, 2003 was 77,936,358.
PART 1 - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
WINDSWEPT ENVIRONMENTAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
APRIL 1, 2003 AND JULY 2, 2002
April 1, July 2,
2003 2002
(Unaudited)
---------------- ----------------
ASSETS:
CURRENT ASSETS:
Cash $ 58,575 $ 399,679
Accounts receivable, net of allowance for doubtful accounts of $553,891
and $909,029, respectively 6,448,029 7,519,203
Inventories 239,932 296,474
Costs and estimated earnings in excess of billings on uncompleted contracts 471,077 501,424
Recoverable income taxes 380,947 -
Prepaid expenses and other current assets 236,792 144,274
---------------- ----------------
Total current assets 7,835,352 8,861,054
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of
$4,959,497 and $4,550,006, respectively 1,813,375 1,144,369
OTHER ASSETS 264,805 207,115
---------------- ----------------
TOTAL $ 9,913,532 $ 10,212,538
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 1,414,591 $ 1,060,074
Accrued expenses 1,214,758 1,740,093
Short-term notes payable to related party 1,200,000 200,000
Billings in excess of cost and estimated earnings on uncompleted contracts 184,516 193,251
Accrued payroll and related fringes 716,104 551,091
Convertible notes payable to related party - 100,000
Current portion of long-term debt 172,180 71,265
Income taxes payable - 450,820
Other current liabilities 124,847 167,987
---------------- ----------------
Total current liabilities 5,026,996 4,534,581
---------------- ----------------
LONG-TERM DEBT 242,425 63,703
---------------- ----------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE COMMON STOCK AND STOCK OPTIONS 508,897 941,871
---------------- ----------------
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK, $.01 par value; 1,300,000 shares
authorized; 1,300,000 shares outstanding at April 1, 2003 and July 2, 2002 1,300,000 1,300,000
---------------- ----------------
STOCKHOLDERS' EQUITY:
Series B convertible preferred stock, $.01 par value; 50,000 shares
authorized; 0 shares outstanding at April 1, 2003 and July 2, 2002 - -
Nondesignated preferred stock, no par value; 8,650,000 shares authorized; 0 shares
outstanding at April 1, 2003 and July 2, 2002 - -
Common stock, $.0001 par value; 150,000,000 shares authorized; 77,936,358 shares
outstanding at April 1, 2003 and July 2, 2002. 7,794 7,794
Additional paid-in-capital 34,019,517 34,078,017
Accumulated deficit (31,192,097) (30,713,428)
---------------- ----------------
Total stockholders' equity 2,835,214 3,372,383
---------------- ----------------
TOTAL $ 9,913,532 $ 10,212,538
================ ================
See notes to consolidated financial statements.
2
WINDSWEPT ENVIRONMENTAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------------------- ---------------------------------
April 1, April 2, April 1, April 2,
2003 2002 2003 2002
-------------- -------------- -------------- --------------
Revenues $ 3,648,548 $ 5,823,792 $ 14,105,571 $ 26,559,419
Cost of revenues 3,204,889 3,852,088 11,314,559 16,848,979
-------------- -------------- -------------- --------------
Gross profit 443,659 1,971,704 2,791,012 9,710,440
-------------- -------------- -------------- --------------
Operating expenses:
Selling, general and administrative expenses 1,463,083 1,326,056 4,049,641 3,657,172
(Benefit) expense related to variable accounting
treatment for officer options (270,409) (487,324) (432,974) 880,696
-------------- -------------- -------------- --------------
Total operating expenses 1,192,674 838,732 3,616,667 4,537,868
-------------- -------------- -------------- --------------
(Loss) income from operations (749,015) 1,132,972 (825,655) 5,172,572
-------------- -------------- -------------- --------------
Other expense (income):
Interest expense 16,100 31,205 51,290 226,485
Other, net (116) (1,006) (23,425) (11,010)
-------------- -------------- -------------- --------------
Total other expense 15,984 30,199 27,865 215,475
-------------- -------------- -------------- --------------
(Loss) income before (benefit) provision for income
taxes (764,999) 1,102,773 (853,520) 4,957,097
(Benefit) provision for income taxes (365,534) 343,249 (374,851) 2,425,314
-------------- -------------- -------------- --------------
Net (loss) income (399,465) 759,524 (478,669) 2,531,783
Dividends on preferred stock (19,500) (19,500) (58,500) (449,219)
-------------- -------------- -------------- --------------
Net (loss) income attributable to common shareholders
$ (418,965) $ 740,024 $ (537,169) $ 2,082,564
============== ============== ============== ==============
Basic and diluted net (loss) income per common share:
Basic ($.01) $.01 ($.01) $.04
======= ====== ====== ======
Diluted ($.01) $.01 ($.01) $.03
======= ====== ====== ======
Weighted average number of common shares outstanding:
Basic 77,936,358 77,921,163 77,936,358 58,350,743
============== ============== ============== ==============
Diluted 77,936,358 86,967,474 77,936,358 86,222,738
============== ============== ============== ==============
See notes to consolidated financial statements.
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 - - (58,500) - (58,500)
Net loss - - - (478,669) (478,669)
---------- ------ ------------ ------------- -----------
Balance at April 1, 2003 77,936,358 $7,794 $34,019,517 $(31,192,097) $2,835,214
========== ====== ============ ============= ===========
See notes to consolidated financial statements.
4
WINDSWEPT ENVIRONMENTAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Thirty-Nine Weeks Ended
-----------------------------------
April 1, 2003 April 2, 2002
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (478,669) $ 2,531,783
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating
activities:
Depreciation and amortization 409,491 530,736
Provision for doubtful accounts 196,913 244,644
Compensation (benefit) expense related to officer options and redeemable common
stock (432,974) 880,696
Changes in operating assets and liabilities:
Accounts receivable 874,261 (2,837,812)
Inventories 56,542 (64,148)
Costs and estimated earnings in excess of billings on uncompleted contracts 30,347 72,086
Recoverable income taxes (380,947) -
Prepaid and other current assets (92,518) (133,474)
Other assets (57,690) 45,723
Accounts payable and accrued expenses (170,818) 233,158
Accrued payroll and related fringes 165,013 67,123
Income taxes payable (450,820) 828,069
Other current liabilities (43,140) 190,478
Billings in excess of costs and estimated earnings on uncompleted contracts (8,735) (391,838)
--------------- ---------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (383,744) 2,197,224
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,078,497) (642,609)
--------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (1,078,497) (642,609)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (112,194) (65,424)
Proceeds from long-term debt 391,831 137,965
Proceeds from exercise of stock options - 83,182
Repayment of convertible note to related party (100,000) -
Payment of convertible notes - (680,000)
Payment of preferred stock dividends (58,500) (195,000)
Proceeds from short-term notes payable from related party 1,825,000 1,750,000
Repayments of short-term notes payable to related party (825,000) (2,750,000)
--------------- ---------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,121,137 (1,719,277)
--------------- ---------------
NET DECREASE IN CASH (341,104) (164,662)
CASH - BEGINNING OF PERIOD 399,679 323,732
--------------- ---------------
CASH - END OF PERIOD $ 58,575 $ 159,070
=============== ===============
Cash paid during the period for:
Interest $ 50,203 $ 117,779
=============== ===============
Taxes $ 232,731 $ 1,554,620
=============== ===============
Non cash financing activities:
Issuance of preferred stock dividend $ - $ 390,719
=============== ===============
Conversion of accrued and unpaid interest to common stock $ - $ 331,951
=============== ===============
Conversion of convertible note to related party $ - $ 2,000,000
=============== ===============
Conversion of preferred stock $ - $ 93
=============== ===============
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 accounting principles generally accepted in the United
States of America 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
accounting principles generally accepted in the United States of America
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 April 1, 2003, the results of
operations for the thirteen and thirty-nine weeks ended April 1, 2003 and
April 2, 2002 and cash flows for the thirty-nine weeks ended April 1, 2003
and April 2, 2002, have been included. Certain prior period amounts have
been reclassified to conform to the April 1, 2003 presentation.
The results for the thirteen and thirty-nine weeks ended April 1, 2003 and
April 2, 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. STOCK OPTIONS - In December 2002, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("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" ("SFAS 123"), to
provide alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation
and does not permit the use of the original SFAS No. 123 prospective method
of transition in fiscal years beginning after December 15, 2003. 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,
regardless of whether, when, or how an entity adopts the preferable, fair
value based method of accounting. SFAS No. 148 improves the prominence and
clarity of the pro forma disclosures required by SFAS No. 123 by
prescribing a specific tabular format and by requiring disclosure in the
"Summary of Significant Accounting Policies" or its equivalent and improves
the timeliness of those disclosures by requiring their inclusion in
financial reports for interim periods. The Company has adopted the
disclosure requirements of SFAS No. 148 for the quarter ended April 1,
2003. The Company will continue to account for stock-based employee
compensation under APB Opinion No. 25 and its related interpretations.
The following table illustrates the effect on net income (loss) and net
(loss) income per share if the Company had applied the fair value
recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation for all periods:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
------------------------------ ------------------------------
April 1, April 2, April 1, April 2,
2003 2002 2003 2002
---- ---- ---- ----
Net (loss) income attributable to common
shareholders as reported ($418,965) $740,024 ($537,169) 2,082,564
Less: Stock-based employee
compensation cost determined under
the fair value method, net of related
tax effects 316,233 245,315 948,700 735,944
---------- --------- ------------ -----------
Pro forma net (loss) income ($735,198) $494,709 ($1,485,869) $1,346,620
========== ========= ============ ===========
6
Net (loss) income attributable to common
shareholders per share:
Basic - as reported ($.01) $.01 ($.01) $.04
======= ====== ======= ======
Basic - pro forma ($.01) $.01 ($.02) $.02
======= ====== ======= ======
Diluted - as reported ($.01) $.01 ($.01) $.03
======= ====== ======= ======
Diluted - pro forma ($.01) $.01 ($.02) $.02
======= ====== ======= ======
The fair value of these options was estimated using the
Black-Scholes option pricing model with the following weighted
average assumptions:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
------------------------------ ------------------------------
April 1, April 2, April 1, April 2,
2003 2002 2003 2002
---- ---- ---- ----
Risk free rate 2.62% 4.53% 2.62% 4.53%
Dividend yield 0 0 0 0
Volatility 136% 146% 136% 146%
Expected Option Life 1 -5 yrs 2 - 5 yrs 1 -5 yrs 2 - 5 yrs
3. LIQUIDITY AND BUSINESS RISKS - As of April 1, 2003, the Company had a
cash balance of $58,575, working capital of $2,808,356 and stockholders'
equity of $2,835,214. Historically, the Company has financed its operations
primarily through issuance of debt and equity securities, through
short-term borrowings from its majority shareholder, Spotless Enterprises,
Inc. ("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 thirty-nine weeks ended April 1, 2003, in order to address the
Company's cash flow and operational concerns, including funding the payment
of income taxes, the purchase of fixed assets, the delay in receipt of
payment of large receivables and to fund net losses, the Company borrowed
$1,825,000 from Spotless. During the thirty-nine weeks ended April 1, 2003,
the Company repaid $825,000 to Spotless. All borrowings from Spotless bear
interest at the London Interbank Offering Rate ("LIBOR") plus 1 percent
(2.68%), are secured by all of the Company's assets and are payable on
demand. As of April 1, 2003, the Company owed Spotless $1,200,000 on such
short-term notes to fund working capital. Subsequent to April 1, 2003, the
Company borrowed an additional $250,000 so that, as of April 30, 2003, the
Company owed Spotless $1,450,000. During the thirty-nine weeks ended April
1, 2003, the Company obtained financing of $391,831 from unrelated parties
for purchases of vehicles and equipment.
During the thirty-nine weeks ended April 1, 2003, 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
7
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 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.
4. (BENEFIT) PROVISION FOR INCOME TAXES - The (benefit) provision for income
taxes for the thirteen and thirty-nine weeks ended April 1, 2003 and April
2, 2002 consists of the following:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
------------------------------ ------------------------------
April 1, April 2, April 1, April 2,
2003 2002 2003 2002
---- ---- ---- ----
Federal - current $(365,534) $ 243,407 $ (380,947) $1,712,997
State - current - 99,842 6,096 712,317
---------- ----------- ----------- -----------
Total $(365,534) $ 343,249 $ (374,851) $2,425,314
========== =========== =========== ===========
The effective rate for income taxes differs from the statutory rates
primarily as a result of the 100% valuation allowance against deferred tax
assets. 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 April 1, 2003, 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.
5. NET (LOSS) INCOME PER COMMON SHARE - The calculation of basic and
diluted net (loss) 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
(loss) income per share for the thirteen and thirty-nine weeks ended April
1, 2003 and April 2, 2002, respectively:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
------------------------------ ------------------------------
April 1, April 2, April 1, April 2,
2003 2002 2003 2002
---- ---- ---- ----
Numerator:
Net (loss) income attributable to
common shareholders ($418,965) $740,024 ($537,169) $2,082,564
Add interest on convertible notes,
net of tax - 2,269 - 100,514
----------- ----------- ----------- -----------
($418,965) $742,293 ($537,169) $2,183,078
=========== =========== =========== ===========
Denominator:
Share reconciliation:
Shares used for basic (loss)
income per share 77,936,358 77,921,163 77,936,358 58,350,743
Effect of dilutive items:
Stock options - 7,777,798 - 7,221,838
Convertible securities - 1,268,513 - 20,650,157
----------- ----------- ----------- -----------
Shares used for dilutive (loss)
income per share 77,936,358 86,967,474 77,936,358 86,222,738
=========== =========== =========== ===========
8
Net (loss) income per share:
Basic ($.01) $.01 ($.01) $.04
Diluted ($.01) $.01 ($.01) $.03
The dilutive loss per share computation for the thirteen and thirty-nine
week periods ended April 1, 2003 excludes approximately 4,369,000 and
4,680,000 shares, respectively, related to employee stock options and
approximately 418,000 shares for the thirty-nine week period ended April 1,
2003 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.
6. 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 was 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 has agreed to settle this case
and to pay claims that have been validated by the court appointed
accountant. The Company has reserved approximately $370,000 for this matter
and is currently evaluating the potential amount to be paid for claims. The
Company believes that the amount of claims ultimately paid 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.
7. 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 April 1, 2003, the Company owed
Spotless $1,200,000 under this promissory note. Subsequent to April 1,
2003, the Company borrowed an additional $250,000 and as of April 30, 2003,
the Company owed Spotless $1,450,000 on such short-term loans to fund
working capital.
In the thirty-nine weeks ended April 1, 2003, the Company repaid $100,000
principal amount of 12% convertible notes to a director of the Company.
8. RECENT ACCOUNTING PRONOUNCEMENTS - In June 2001, the FASB issued SFAS
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). 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 3, 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" ("SFAS 143"). The standard requires entities to
record the fair value of a liability for an asset retirement obligation
9
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 144"). 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 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 did not have a material impact on the
Company's consolidated financial statements.
In November 2002, the FASB issued interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirement for Guarantees, Including Indirect
Guarantees and indebtedness of Others." The interpretation elaborates on
the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under certain guaranties that it
has issued. The interpretation also clarifies that a guarantor is required
to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee. The initial
recognition and initial measurements provisions of the interpretation are
applicable on a prospective basis to guaranties issued or modified after
December 31, 2002. The Company has made no material guaranties subject to
the liability recognition and disclosure provisions of the interpretation.
10
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:
o the market acceptance and amount of sales of the Company's services,
o the Company's success in increasing revenues and reducing expenses,
o the frequency and magnitude of environmental disasters or
disruptions resulting in the need for the types of services the
Company provides,
o the extent of the enactment, enforcement and strict interpretations
of laws relating to environmental remediation,
o the competitive environment within the industries in which the
Company operates,
o the Company's ability to raise additional capital and generate cash
flow from operations,
o the Company's ability to attract and retain qualified personnel, and
o 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 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
11
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 April 1, 2003. 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 APRIL 1, 2003 AND APRIL 2, 2002
Revenue
Total revenues for the thirteen weeks ended April 1, 2003 decreased by
$2,175,244, or 37%, to $3,648,548 from $5,823,792 for the thirteen weeks
ended April 2, 2002. This decrease in revenues of $2,175,244 was primarily
attributable to decreases of approximately $3,182,000 related to
non-recurring remediation work performed in the vicinity of the World Trade
Center, $221,000 related to emergency spills and soil remediation and
$110,000 related to testing and consulting services, which was partially
offset by increases of approximately $347,000 related to asbestos, lead and
mold projects and $999,000 related to insurance reconstruction and spills.
At the end of the thirteen weeks ended April 1, 2003, the Company began
mobilization on a contract with Consolidated Edison which, when completed,
is expected to produce total billings in excess of $1,500,000. The Company
anticipates that this contract will take approximately four months to
complete.
Cost of Revenues
Cost of revenues decreased $647,199 or 17% to $3,204,889 for the thirteen
weeks ended April 1, 2003 as compared to $3,852,088 for the thirteen weeks
ended April 2, 2002. Gross profit decreased $1,528,045 to $443,659, or 12%
of total revenue, for the thirteen weeks ended April 1, 2003 from
$1,971,704, or 34% of total revenue, for the thirteen weeks ended April 2,
2002, due primarily to the absence of higher margin remediation work in the
vicinity of the World Trade Center. Decreasing revenues and the absence of
large projects causes the Company's margins to erode. To offset this
condition, the Company reduced its direct labor force in February 2003.
This reduction aggregated approximately $56,000 in the thirteen weeks ended
April 1, 2003. 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 $137,027 or 10%
to $1,463,083 for the thirteen weeks ended April 1, 2003 from $1,326,056
for the thirteen weeks ended April 2, 2002 and constituted approximately
40% and 23% of revenues in these periods, respectively. This increase was
primarily attributable to increases in sales and marketing expenses of
$60,000 and legal reserves relating to the settlement of litigation of
$205,000, partially offset by decreases in the provision for doubtful
accounts of $119,000.
(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
$270,409 for the thirteen weeks ended April 1, 2003 compared to a benefit
of $487,324 for the thirteen weeks ended April 2, 2002. This change was due
to a decrease in the market price of the Company's common stock and an
increase in the number of options outstanding which are vested. 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.
12
Interest Expense
Interest expense decreased by $15,105, or 48%, to $16,100 for the thirteen
weeks ended April 1, 2003 from $31,205 for the thirteen weeks ended April
2, 2002. The decrease in interest expense was primarily attributable to
lower amounts of debt outstanding resulting from reductions in convertible
debt of $2,780,000, of which $2,000,000 was converted by Spotless in
November 2001, $680,000 was repaid to unrelated parties in March 2002 and
$100,000 was repaid to a related party in the first six months of this
year. Such decreases were offset by increased short-term borrowings from
Spotless of $1,000,000.
(Benefit) Provision for Income Taxes
The (benefit) provision for income taxes increased by $708,783 to a benefit
of $365,534 for the thirteen weeks ended April 1, 2003 from a provision of
$343,249 for the thirteen weeks ended April 2, 2002. The increase was
primarily attributable to the net loss for the thirteen weeks ended April
1, 2003.
Net (Loss) Income
Net income decreased by $1,158,989 to a net loss of $399,465 for the
thirteen weeks ended April 1, 2003 from net income of $759,524 for the
thirteen weeks ended April 2, 2002. The decrease was the result of the
factors discussed above.
THIRTY-NINE WEEKS ENDED APRIL 1, 2003 AND APRIL 2, 2002
Revenue
Total revenues for the thirty-nine weeks ended April 1, 2003 decreased by
$12,453,848, or 47%, to $14,105,571 from $26,559,419 for the thirty-nine
weeks ended April 2, 2002. This decrease in revenues of $12,453,848 was
primarily attributable to decreases of approximately $14,070,000 related to
non-recurring remediation work performed in the vicinity of the World Trade
Center, decreases in emergency spill and soil remediation projects of
approximately $2,564,000 and decreases of approximately $300,000 of testing
and consulting services. Such decreases were partially offset by increases
in mold remediation revenues of approximately $2,000,000 and insurance
reconstruction revenues of approximately $2,523,000.
Cost of Revenues
Cost of revenues decreased $5,534,420 or 33% to $11,314,559 for the
thirty-nine weeks ended April 1, 2003 as compared to $16,848,979 for the
thirty-nine weeks ended April 2, 2002. This decrease was primarily
attributable to the labor and subcontractor costs which were required for
the thirty-nine weeks ended April 2, 2002 period associated with
non-recurring remediation work performed in the vicinity of the World Trade
Center. Gross profit decreased $6,919,428 or 71% to $2,791,012, or 20% of
total revenue, for the thirty-nine weeks ended April 1, 2003 from
$9,710,440, or 37% of total revenue for the thirty-nine weeks ended April
2, 2002. The decrease in gross profit was primarily attributable to the
absence of World Trade Center related work, which produced higher margins
for the thirty-nine weeks ended April 2, 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 $392,469 or 11%
to $4,049,641 for the thirty-nine weeks ended April 1, 2003 from $3,657,172
for the thirty-nine weeks ended April 2, 2002 and constituted approximately
29% and 14% of revenues, respectively. The increase was primarily
attributable to increases in sales and marketing expenses of approximately
$311,000.
(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,
13
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
$432,974 for the thirty-nine weeks ended April 1, 2003 compared to an
expense of $880,696 for the thirty-nine weeks ended April 2, 2002. This
change was due to a decrease in the market price of the Company's common
stock and an increase in the number of options outstanding which are
vested. 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 $175,195, or 77%, to $51,290 for the
thirty-nine weeks ended April 1, 2003 from $226,485 for the thirty-nine
weeks ended April 2, 2002. The decrease in interest expense was primarily
attributable to lower amounts of debt outstanding resulting from reductions
in convertible debt of $2,780,000, of which $2,000,000 was converted by
Spotless in November 2001, $680,000 was repaid to unrelated parties in
March 2002 and $100,000 was repaid to a related party in the first six
months of this year. Such decreases were partially offset by increased
short-term borrowings from Spotless of $1,000,000.
(Benefit) Provision for Income Taxes
The (benefit) provision for income taxes increased by $2,800,165 to a
benefit of $374,851 for the thirty-nine weeks ended April 1, 2003 as
compared to a provision of $2,425,314 for the thirty-nine weeks ended April
2, 2002. The increase was primarily attributable to the net loss for the
thirty-nine weeks ended April 1, 2003.
Net (Loss) Income
Net income decreased by $3,010,452 to a net loss of ($478,669) for the
thirty-nine weeks ended April 1, 2003 from net income of $2,531,783 for the
thirty-nine weeks ended April 2, 2002. The decrease was the result of the
factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As of April 1, 2003, the Company had a cash balance of $58,575, working
capital of $2,808,356 and stockholders' equity of $2,835,214. 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 thirty-nine weeks ended April 1, 2003, in order to address the
Company's cash flow and operational concerns, including funding the payment
of income taxes, the purchase of fixed assets, the delay in receipt of
payment of large receivables and to fund net losses, the Company borrowed
$1,825,000 from Spotless. During the thirty-nine weeks ended April 1, 2003,
the Company repaid $825,000 to Spotless. All borrowings from Spotless bear
interest at the London Interbank Offering Rate ("LIBOR") plus 1 percent
(2.68%), are secured by all of the Company's assets and are payable on
demand. As of April 1, 2003, the Company owed Spotless $1,200,000 on such
short-term notes to fund working capital. Subsequent to April 1, 2003, the
Company borrowed an additional $250,000 from Spotless so that as of April
30, 2003, the Company owed Spotless $1,450,000. During the thirty-nine
weeks ended April 1, 2003, the Company obtained financing of $391,831 from
unrelated parties for purchases of vehicles and equipment.
During the thirty-nine weeks ended April 1, 2003, 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
14
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 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.
The table below summarizes aggregate maturities of future minimum lease
payments under noncancelable operating leases and long-term debt as of
April 1, 2003:
Total 1 Year 2-3 Years 4-5 Years
Operating Leases $1,537,000 $355,000 $753,000 $429,000
Long-term debt $414,605 $172,180 $ 93,188 $149,237
CASH FLOW
Net cash used by operating activities was $383,744 for the thirty-nine
weeks ended April 1, 2003. Accounts receivable decreased by $874,261.
Income taxes payable decreased $450,820 as a result of the decrease in
taxable income and state and federal tax payments. Cash used for capital
expenditures was $1,078,497 during the thirty-nine weeks ended April 1,
2003, primarily to fund the purchase of commercial drying equipment.
During the thirty-nine weeks ended April 1, 2003, in order to fund the net
loss before the benefit from recoverable income taxes, the Company borrowed
$1,825,000 from Spotless and then repaid $825,000 of such amount.
Subsequent to April 1, 2003, the Company borrowed an additional $250,000
from Spotless. All current borrowings from Spotless bear interest at LIBOR
plus 1 percent (3.07% at April 1, 2003) 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 thirty-nine weeks ended April 1,
2003.
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
15
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.
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
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits:
10.1 Stipulation of Settlement of action entitled NICOLAI
GRIB AND VLADISLAV KAZAROV V. TRADE-WINDS ENVIRONMENTAL
RESTORATION, INC. AND GULF INSURANCE
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 April 1, 2003.
16
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: May 15, 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)
17
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: May 15, 2003 /s/ Michael O'Reilly
-------------------------------------
Michael O'Reilly
President and Chief Executive Officer
18
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: May 15, 2003 /s/ Charles L. Kelly, Jr.
-----------------------------------
Charles L. Kelly Jr.
Chief Financial Officer
19