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 JANUARY 1, 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 __

The number of shares of Common Stock, par value $.0001, outstanding on
January 29, 2002 was 77,895,968.

<PAGE>

                         PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements

                       WINDSWEPT ENVIRONMENTAL GROUP, INC.
                           CONSOLIDATED BALANCE SHEETS
                        JANUARY 1, 2002 AND JULY 3, 2001
<TABLE>
<CAPTION>
                                                                                                     January 1,          July 3,
                                                                                                        2002              2001
                                                                                                    (Unaudited)
                                                                                                  ---------------    ---------------
<S>                                                                                                <C>               <C>
ASSETS:

CURRENT ASSETS:
  Cash                                                                                             $  2,108,206      $    323,732
  Accounts receivable, net of allowance for doubtful accounts of $724,509 and $570,409,
    respectively                                                                                      7,918,258         5,581,883
  Inventories                                                                                           278,669           208,064
  Costs and estimated earnings in excess of billings on uncompleted contracts                           455,080           686,528
  Prepaid expenses and other current assets                                                             338,962           122,172
                                                                                                   -------------     -------------
  Total current assets                                                                               11,099,175         6,922,379

PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $4,230,721
  and $3,887,920, respectively                                                                        1,174,725         1,118,382

OTHER ASSETS                                                                                            112,768           151,807
                                                                                                   -------------     -------------

TOTAL                                                                                              $ 12,386,668      $  8,192,568
                                                                                                   =============     =============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):

CURRENT LIABILITIES:
   Accounts payable                                                                                $  1,018,646      $  1,150,987
   Accrued expenses                                                                                   2,274,926         1,816,441
   Short-term notes payable                                                                             200,000         1,200,000
   Billings in excess of cost and estimated earnings on uncompleted contracts                           177,057           525,359
   Accrued payroll and related fringes                                                                1,185,579           568,741
   Current portion of convertible notes                                                                 680,000           680,000
   Current portion of long-term debt                                                                     84,623            67,302
   Income taxes payable                                                                               1,520,378           531,714
   Other current liabilities                                                                            396,173           338,872
                                                                                                   -------------     -------------
   Total current liabilities                                                                          7,537,382         6,879,416
                                                                                                   -------------     -------------

CONVERTIBLE NOTES                                                                                       100,000         2,100,000
                                                                                                   -------------     -------------

LONG-TERM DEBT                                                                                           42,860            14,250
                                                                                                   -------------     -------------

COMMITMENTS AND CONTINGENCIES

REDEEMABLE COMMON STOCK                                                                               1,754,078           386,058
                                                                                                   -------------     -------------

SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK, $.01 par value; 1,300,000 shares
  authorized; 1,300,000 shares outstanding at January 1, 2002 and July 3, 2001                        1,300,000         1,300,000
                                                                                                   -------------     -------------

STOCKHOLDERS' EQUITY (DEFICIT):
  Series B convertible preferred stock, $.01 par value; 50,000 shares authorized;
    0 and 9,346 shares outstanding at January 1, 2002 and July 3, 2001, respectively                     -                     93
  Nondesignated preferred stock, no par value; 8,650,000 shares authorized;
    0 shares outstanding                                                                                 -                  -
  Common stock, $.0001 par value; 150,000,000 shares authorized; 77,895,968 and
    38,481,254 shares outstanding at January 1, 2002 and July 3, 2001, respectively                       7,790             3,848
  Additional paid-in-capital                                                                         34,080,596        31,717,198
  Accumulated deficit                                                                               (32,436,038)      (34,208,295)
                                                                                                   -------------     -------------
  Total stockholders' equity (deficit)                                                                1,652,348        (2,487,156)
                                                                                                   -------------     -------------

TOTAL                                                                                              $ 12,386,668      $  8,192,568
                                                                                                   =============     =============

  See notes to consolidated financial statements.
</TABLE>

                                       2
<PAGE>




                       WINDSWEPT ENVIRONMENTAL GROUP, INC.
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>

                                                              Thirteen Weeks Ended                   Twenty-Six Weeks Ended
                                                         -------------------------------      ---------------------------------
                                                          January 1,         January 2,        January 1,           January 2,
                                                             2002               2001              2002                  2001
                                                         ------------       ------------      ------------         ------------
<S>                                                      <C>                <C>               <C>                  <C>
Revenues                                                 $13,000,553        $10,328,474       $20,735,627          $13,373,639

Cost of revenues                                           7,676,358          6,080,359        12,996,891            8,174,588
                                                         ------------       ------------      ------------         ------------

Gross profit                                               5,324,195          4,248,115         7,738,736            5,199,051
                                                         ------------       ------------      ------------         ------------

Operating expenses:
Selling, general and administrative expenses               1,356,966          1,313,327         2,331,116            2,280,360
Expense (benefit) related to variable accounting
  treatment for officer options                            1,127,575             (7,280)        1,368,020              (69,008)
                                                         ------------       ------------      ------------         ------------
  Total operating expenses                                 2,484,541          1,306,047         3,699,136            2,211,352
                                                         ------------       ------------      ------------         ------------

Income from operations                                     2,839,654          2,942,068         4,039,600            2,987,699
                                                         ------------       ------------      ------------         ------------

Other expense (income):
  Interest expense                                           120,807             99,988           195,282              181,979
  Other, net                                                    (660)            (5,530)          (10,004)              (9,640)
                                                         ------------       ------------      ------------         ------------
  Total other expense                                        120,147             94,458           185,278              172,339
                                                         ------------       ------------      ------------         ------------

Income before provision for income taxes                   2,719,507          2,847,610         3,854,322            2,815,360

Provision for income taxes                                 1,710,403            734,488         2,082,065              734,488
                                                         ------------       ------------      ------------         ------------

Net income                                                 1,009,104          2,113,122         1,772,257            2,080,872

Dividends on Preferred Stock                                (410,219)           (19,500)         (429,719)             (39,000)
                                                         ------------       ------------      ------------         ------------

Net income attributable to common shareholders           $   598,885        $ 2,093,622       $ 1,342,538          $ 2,041,872
                                                         ============       ============      ============         ============

Basic and diluted net income per common share:
Basic                                                           $.01               $.05              $.03                 $.05
                                                                ====               ====              ====                 ====
Diluted                                                         $.01               $.03              $.02                 $.03
                                                                ====               ====              ====                 ====

Weighted average number of common shares outstanding:
Basic                                                     58,653,415         38,456,254        48,511,610           38,456,254
                                                         ============       ============      ============         ============
Diluted                                                   86,759,104         79,475,804        85,736,529           80,213,928
                                                         ============       ============      ============         ============

See notes to consolidated financial statements.
</TABLE>

                                       3
<PAGE>


                       WINDSWEPT ENVIRONMENTAL GROUP, INC.
           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
                                               Preferred Stock       Common Stock
                                              -----------------    ------------------    Additional
                                               Number      Par     Number of     Par       Paid-in      Accumulated
                                              of Shares   Value     Shares      Value      Capital        Deficit          Total
                                              ---------   -----     ------      -----      -------        -------          -----
<S>                                            <C>        <C>     <C>           <C>      <C>            <C>            <C>
Balance at July 5, 2000                         9,346      $93    38,456,254    $3,846   $ 31,791,950   $(34,988,177)  $(3,192,288)

Exercise of stock options                           -        -        25,000         2          3,248              -         3,250
Dividends on Series A preferred stock               -        -             -         -        (78,000)             -       (78,000)
Net income                                          -        -             -         -              -        779,882       779,882
                                               -------    -----   -----------   -------  -------------  -------------  ------------

Balance at July 3, 2001                         9,346       93    38,481,254     3,848     31,717,198    (34,208,295)   (2,487,156)

Exercise of stock options                           -        -       364,290        36         74,260              -        74,296
Dividends on Series A preferred stock               -        -             -         -        (39,000)             -       (39,000)
Conversion of Series B preferred stock         (9,346)     (93)   10,495,174     1,050           (957)             -             -
Conversion of convertible note and
  related accrued and unpaid interest               -        -    28,555,250     2,856      2,329,095              -     2,331,951
Net income                                          -        -             -         -              -      1,772,257     1,772,257
                                               -------    -----   -----------   -------  -------------  -------------  ------------
Balance at January 2, 2002                          -     $  -    77,895,968    $7,790   $ 34,080,596    (32,436,038)  $ 1,652,348
                                               =======    =====   ===========   =======  =============  =============  ============

See notes to consolidated financial statements.
</TABLE>

                                       4
<PAGE>


                       WINDSWEPT ENVIRONMENTAL GROUP, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                                       Twenty-Six Weeks Ended
                                                                                                ---------------------------------
                                                                                                 January 1,           January 2,
                                                                                                    2002                 2001
                                                                                                ------------         ------------
<S>                                                                                             <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                                                   $ 1,772,257          $ 2,080,872
   Adjustments to reconcile net income to net cash provided by (used in) operating
   activities:
     Depreciation and amortization                                                                  342,801              379,954
     Provision for doubtful accounts                                                                154,100              243,858
     Compensation expense (benefit) related to officer options and redeemable common
       stock                                                                                      1,368,020              (69,008)
   Changes in operating assets and liabilities:
     Accounts receivable                                                                         (2,490,475)          (4,758,063)
     Inventories                                                                                    (70,605)             (15,109)
     Costs and estimated earnings in excess of billings on uncompleted contracts                    231,448             (448,424)
     Prepaid and other current assets                                                              (216,790)             154,138
     Other assets                                                                                    39,039               27,772
     Accounts payable and accrued expenses                                                          619,095              790,637
     Accrued payroll and related fringes                                                            616,838              100,401
     Income taxes payable                                                                           988,664              736,843
     Other current liabilities                                                                       57,301              167,740
     Billings in excess of costs and estimated earnings on uncompleted contracts                   (348,302)             (62,410)
                                                                                                ------------         ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                               3,063,391             (670,799)
                                                                                                ------------         ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of fixed assets                                                                       (399,144)             (82,269)
                                                                                                ------------         ------------
NET CASH USED IN INVESTING ACTIVITIES                                                              (399,144)             (82,269)
                                                                                                ------------         ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Principal payments of long-term debt                                                             (43,363)             (89,216)
   Proceeds from long-term debt                                                                      89,294                    -
   Proceeds from exercise of stock options                                                           74,296                    -
   Proceeds from short-term notes payable                                                         1,750,000            1,600,000
   Repayments of short-term notes payable                                                        (2,750,000)          (1,100,000)
                                                                                                ------------         ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                                                (879,773)             410,784
                                                                                                ------------         ------------

NET INCREASE (DECREASE) IN CASH                                                                   1,784,474             (342,284)

CASH - BEGINNING OF PERIOD                                                                          323,732              599,970
                                                                                                ------------         ------------

CASH - END OF PERIOD                                                                            $ 2,108,206          $   257,686
                                                                                                ============         ============

Cash paid during the period for:
   Interest                                                                                     $    62,355          $    56,255
                                                                                                ============         ============
   Taxes                                                                                        $ 1,054,620          $     4,417
                                                                                                ============         ============

Non cash financing activities:
    Issuance of preferred stock dividend                                                        $   429,719          $    39,000
                                                                                                ============         ============
    Conversion of accrued and unpaid interest to common stock                                   $   331,951          $         -
                                                                                                ============         ============

See notes to consolidated financial statements.
</TABLE>


<PAGE>


                       WINDSWEPT ENVIRONMENTAL GROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.   BASIS FOR PRESENTATION - The accompanying unaudited consolidated
     financial statements include the accounts of Windswept Environmental Group,
     Inc. (the "Company") and its wholly owned  subsidiaries.  The  unaudited
     consolidated  financial statements  have been  prepared  by the Company in
     accordance with generally accepted  accounting  principles  for  interim
     financial  statements and with the instructions to Form 10-Q and Article 10
     of Regulation S-X. Accordingly, they do not include all of the information
     and footnotes required by generally  accepted  accounting  principles  for
     complete financial  statements.   In  the opinion  of  the  Company,  all
     adjustments (consisting of only normal and recurring accruals)  considered
     necessary to present  fairly the financial  position of the Company and its
     subsidiaries on a consolidated  basis as of January 1, 2002, the results of
     operations for the thirteen and twenty-six weeks ended January 1, 2002 and
     January 2, 2001 and cash flows for the  twenty-six  weeks ended  January 1,
     2002 and January 2, 2001, have been included.  Certain prior period amounts
     have been reclassified to conform to the January 2002 presentation.

     The results for the thirteen and twenty-six weeks ended January 1, 2002 and
     January 2, 2001 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  transition
     period from May 1, 2001  through July 3, 2001 and the  Company's  Form 10-K
     for the fiscal year ended April 30, 2001.

2.   LIQUIDITY AND BUSINESS RISKS - As of January 1, 2002, the Company had an
     accumulated deficit of $32,436,038. The Company has financed its operations
     to date primarily through issuance of debt and equity securities, through
     short-term  borrowings  from its majority shareholder, Spotless Plastics
     (USA),  Inc.  ("Spotless") and through cash generated from operations.  The
     Company has $680,000 principal amount of convertible notes that will be due
     in full on March 15, 2002.  In the opinion  of  management,  the  Company
     expects to have sufficient working capital to fund current  operations and
     repay the convertible  notes and any related accrued  interest on March 15,
     2002.  However, market conditions  and  their  effect  on  the  Company's
     liquidity may restrict the  Company's use of cash, which may result in the
     Company not making payment on the convertible notes when they become due on
     March  15,  2002.  In the event  that  sufficient  positive  cash flow from
     operations  is not  generated, the Company  may need to seek  additional
     financing from Spotless to satisfy the  convertible  notes when they become
     due,  although Spotless is under no legal obligation to provide such funds.
     The Company currently has no credit facility for additional borrowing.

     The above factors raise substantial  doubt as to the Company's ability to
     continue as a going concern.  The Company's financial statements have been
     prepared  assuming that the Company will continue as a going concern.  The
     financial  statements do not include any adjustments that might result from
     the outcome of this uncertainty.

     After the terrorist attack on the World Trade Center on September 11, 2001,
     the demand for the Company's emergency and catastrophe response  services
     increased  dramatically.  As a result of this increased demand, the Company
     recorded  revenues of approximately $12,400,000 for remediation services
     performed in downtown Manhattan from September 13, 2001 through January 1,
     2002.  Approximately  $10,200,000  of this  revenue has been  collected  by
     January 1, 2002.  Additionally, the Company continues to perform services
     related to the terrorist attack after January 1, 2002. The Company believes
     that  additional  revenues  from such  services  will be  generated  in the
     foreseeable future and that the expected receipt of these  revenues  will
     favorably impact its  liquidity,  although no assurances can be made as to
     the expected volume or impact.

     As of July 3, 2001, the Company owed  Spotless $1,200,000 on  short-term
     loans to fund working capital. During the twenty-six weeks ended January 1,
     2002, in order to address cash flow and operational concerns and to fund
     the increased  payroll that resulted from the greater level of work related
     to the World  Trade Center attack,  the Company  borrowed  an  additional
     $1,750,000 from Spotless.  During the thirteen weeks ended January 1, 2002,
     primarily as a result of cash  collected  from  the World  Trade  Center
     projects,  the Company repaid $2,750,000 to Spotless. A balance of $200,000
     in loans from Spotless was  outstanding  as of January 1, 2002. All current
     borrowings from Spotless

                                       6
<PAGE>

     bear  interest  at the London  Interbank  Offering  Rate  ("LIBOR")  plus 1
     percent and are secured by all of the Company's assets.

     Management  believes the Company  will  require  positive  cash flow from
     operations to meet its working  capital needs over the next twelve  months.
     In the event that positive cash flow from operations is not generated,  the
     Company may be required to seek  additional  financing  to meet its working
     capital needs.  Management continues to pursue additional funding sources.
     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 is striving to
     improve its  gross margin  and  control its selling,   general  and
     administrative expenses.  There can be no assurance,  however, that changes
     in the Company's plans or other events affecting the Company's operations
     will not result in accelerated or unexpected cash requirements, or that it
     will be successful in achieving positive  cash flow from  operations  or
     obtaining additional financing.  The Company's future cash requirements are
     expected to depend on numerous factors,  including, but not limited to: (i)
     the ability to obtain environmental or related construction contracts, (ii)
     the ability to generate positive cash flow from operations, and the extent
     thereof, (iii) the ability to raise additional capital or obtain additional
     financing, and (iv) economic conditions.

3.   PROVISION FOR INCOME TAXES - The provision for income taxes for the
     thirteen and twenty-six weeks ended January 1, 2002 and January 2, 2001
     consists of the following:
<TABLE>
<CAPTION>
                                       Thirteen Weeks Ended          Twenty-Six Weeks Ended
                                       --------------------          ----------------------
                                    January 1,        January 2,   January 1,      January 2,
                                      2002              2001         2002            2001
                                      ----              ----         ----            ----
<S>                                <C>               <C>          <C>              <C>
     Federal - current             $1,207,259        $518,323     $1,469,590       $518,323
     State - current                  503,144         216,165        612,475        216,165
                                   -----------       ---------    -----------      ---------
     Total                         $1,710,403        $734,488     $2,082,065       $734,488
                                   ===========       =========    ===========      =========
</TABLE>

     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.  At January 1, 2002, the Company had
     approximately  $1,192,000  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.

     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.

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  number  of  shares  used in  computing basic income per share  was
     58,653,415  and  38,456,254  shares for the thirteen weeks ended January 1,
     2002 and  January  2,  2001,  respectively.  The number of shares used in
     computing diluted income per share was 86,759,104 and 79,475,804 shares for
     the thirteen weeks ended January 1, 2002 and January 2, 2001, respectively.
     The  number  of  shares  used in computing basic income  per  share  was
     48,511,610 and 38,456,254 shares for the twenty-six weeks ended January 1,
     2002 and  January  2, 2001, respectively.  The  number of shares  used in
     computing diluted income per share was 85,736,529 and 80,213,928 shares for
     the twenty-six weeks  ended  January  1,  2002  and  January  2,  2001,
     respectively.

                                       7
<PAGE>


     The following table sets forth the computation of the basic and diluted net
     income per share for the thirteen  and twenty-six weeks ended January 1,
     2002 and January 2, 2001, respectively:
<TABLE>
<CAPTION>
                                                     Thirteen Weeks Ended              Twenty-Six Weeks Ended
                                                  --------------------------         ---------------------------
                                                  January 1,      January 2,         January 1,       January 2,
                                                    2002             2001               2002            2001
                                                    ----             ----               ----            ----
<S>                                             <C>               <C>                <C>              <C>
     Numerator:
       Net income attributable to
         common shareholders                      $598,885        $2,093,622         $1,342,538       $2,041,872
       Add interest on convertible notes            81,512            30,245             93,124           59,971
                                                  --------        ----------         ----------       ----------
                                                  $680,397        $2,123,867         $1,435,662       $2,101,843
                                                  ========        ==========         ==========       ==========

     Denominator:
       Share reconciliation:
         Shares used for basic income
           per share                            58,653,415        38,456,254         48,511,610       38,456,254
         Effect of dilutive items:
           Stock options                         7,684,798         3,656,220          6,796,317        4,394,068
           Convertible securities               20,420,891        37,363,330         30,428,602       37,363,606
                                                ----------        ----------         ----------       ----------
         Shares used for dilutive income
           per share                            86,759,104        79,475,804         85,736,529       80,213,928
                                                ==========        ==========         ==========       ==========

     Net income per share:
       Basic                                          $.01             $.05               $.03             $.05
       Diluted                                        $.01             $.03               $.02             $.03
</TABLE>


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.  The court has
     ordered that the record of this action be sealed.

     On November 22, 1999, the  Securities  and  Exchange  Commission  ("SEC")
     accepted the Company's settlement offer in its "Order  Instituting  Public
     Administrative Proceedings, Making Findings, Imposing Remedial Sanctions
     and Issuing Cease-and-Desist Order" (the "Order").  Under the terms of the
     Order, the Company neither admitted nor denied any allegations and did not
     incur any monetary fines in connection with an investigation of the Company
     by the SEC that stemmed from the prior convictions of two of the Company's
     former officers for  violations  of,  among  other  things,  the  federal
     securities  laws.  The Order  required the Company to develop and institute
     certain   policies,   procedures and manuals to improve  its  corporate
     governance,  including the adoption of an audit committee charter, a formal
     conflict of interest policy and a formal employee handbook. The Order also
     required the Company to obtain a secure off site storage  facility to store
     its backup data files and system software and to make certain reporting
     disclosures.  The Company has implemented  such  policies, procedures and
     manuals, obtained an off site storage facility and made such disclosures.

     In 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  which are
     normal in the course of its  operations, and while the  results  of such
     litigation  and  claims  cannot be  predicted with  certainty,  management
     believes  that the final outcome of such matters will not have a materially
     adverse effect on the Company's consolidated financial position, results of
     operations and cash flows.

                                       8
<PAGE>

     In January 1996, Laboratory Testing Services,  Inc. ("LTS"), a wholly-owned
     subsidiary of the Company, filed a Chapter 11 petition in United  States
     Bankruptcy  Court in the Eastern District of New York.  Subsequently,  this
     case  was  converted  to a Chapter 7  Bankruptcy  proceeding.  Management
     believes that the Company's  financial  condition and results of operations
     will not be materially affected by this proceeding.

     The Company signed a contract to perform various  tasks at a site in Long
     Island,  New York.  As a  result  of  the  discovery  of  unusual  subsoil
     conditions at the site, estimated contract  completion  costs  have been
     revised.  During the thirteen  weeks ended January 1, 2002,  costs incurred
     included, among other things, direct labor, subcontractor costs, equipment
     rental and disposal costs. Due to uncertainties  inherent in the estimation
     process,  management  believes that there is a reasonable  possibility that
     completion costs for the contract will be further revised in the near-term.
     The Company is in the process of  negotiating additional contract  change
     orders to address this situation.  As of January 1, 2002, based upon the
     estimate to complete, the Company  recognized  a loss on this  contract of
     approximately  $775,000.  As of January 1, 2002,  $610,213  was included in
     accounts receivable related to this customer.

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 January 1, 2002, the Company owed
     Spotless $200,000 under this promissory note.

     On November 16, 2001, Spotless exercised its right to convert all principal
     and accrued and unpaid interest on the $2,000,000  Convertible Promissory
     Note (the "Convertible Note") issued to it by the Company in October 1999.
     As a result of the  conversion  of the  Convertible  Note and  accrued  and
     unpaid interest, the Company issued  28,555,250 shares of its common stock
     to  Spotless's wholly-owned   subsidiary,   Windswept  Acquisition  Corp.
     ("Acquisition  Corp.") in full satisfaction of the Convertible Note and the
     related accrued and unpaid interest.

     Additionally,  on November 16, 2001,  Acquisition Corp. exercised its right
     to convert all 9,346 shares of the Company's Series B preferred stock that
     the Company issued to it in October 1999.  As a result of such conversion
     and in  accordance with the terms of Company's Series B preferred  stock,
     Acquisition Corp. was issued  9,346,000 shares of the Company's  common
     stock. As a result of Acquisition Corp.'s decision to exercise its right to
     convert  and in  accordance  with  the  terms  of the Company's  Series  B
     preferred  stock, an additional  1,149,174  shares of the Company's  common
     stock were issued to  Acquisition  Corp.  The additional shares of common
     stock issued to Acquisition Corp. were calculated based upon a formula that
     takes into  consideration  the value of the Series B preferred stock on the
     date of  issuance  and the number of days elapsed from  the date of the
     issuance of the Series B preferred  stock through the conversion  date. The
     issuance  of the  additional shares of  common  stock  was  recorded  as a
     dividend of $390,719.  The dividend  represents the difference  between the
     fair market value of the Company's common stock issued on November 16, 2001
     and the fair market  value of the Company's common stock at the date the
     Series B preferred stock was issued.

     After giving effect to these conversions,  Spotless currently  beneficially
     owns  61,335,107  shares of the Company's common stock,  which  represents
     approximately 79% of the Company's issued and outstanding  shares of common
     stock.

     As a result of the conversion of the Convertible Note,  options to purchase
     2,811,575  shares of the Company's common stock held by Michael  O'Reilly,
     the President and Chief  Executive Officer of the  Company,  immediately
     vested,  pursuant to the terms of an option  agreement  between the Company
     and Mr. O'Reilly.

                                       9
<PAGE>


7.   RECENT ACCOUNTING PRONOUNCEMENTS - In June 2001, the Financial Accounting
     Standards Board ("FASB") issued Statement of Financial Accounting Standards
     ("SFAS") No. 141, "Business   Combinations".   SFAS  No. 141  applies
     prospectively  to all business  combinations  initiated after June 30, 2001
     and to all business combinations accounted  using the purchase method for
     which the date of  acquisition is July 1, 2001, or later.  This  statement
     requires all business  combinations  to be accounted  for using one method,
     the purchase method.  Under previously existing accounting rules,  business
     combinations were accounted for  using  one  of  two   methods,   the
     pooling-of-interests method or the purchase  method.  The adoption of SFAS
     No. 141 is not expected  to have a  significant  impact on the  Company's
     financial statements.

     In June 2001, the FASB issued 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.  The provisions of this Statement are
     required to be applied  starting with fiscal years beginning after December
     15, 2001.  This  Statement  is  required  to be applied at the fiscal year
     beginning July  2, 2002 and to be 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 arise due
     to  the  initial  application  of  this Statement  are to be  reported  as
     resulting  from a change in accounting  principle.  Goodwill and intangible
     assets acquired  after June 30, 2001, will be subject  immediately to the
     provisions of this Statement.  The adoption of SFAS No. 142 is not expected
     to have a material impact on the Company's 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 is not expected to have a material
     impact on the Company's 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 is not expected to have a material  impact on the  Company's  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:

                                       10
<PAGE>


          -     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 Transition Report on Form 10-K for the period from
                May 1, 2001 through July 3, 2001 and the Company's Annual Report
                on Form 10-K for the fiscal year ended April 30,2001.

Investors should carefully consider such risks, uncertainties and other
information, disclosures and discussions which contain cautionary statements
identifying important factors that could cause actual results to differ
materially from those provided in the forward-looking statements. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.

The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. This discussion should be read in
conjunction with the Consolidated Financial Statements and notes thereto
appearing in Item 1.

RESULTS OF OPERATIONS

THIRTEEN WEEKS ENDED JANUARY 1, 2002 AND JANUARY 2, 2001

Revenue

Total  revenues  for the  thirteen  weeks ended  January 1, 2002 (the "2002
period") increased by $2,672,079, or approximately 26%, to $13,000,553 from
$10,328,474 for the thirteen weeks ended January 2, 2001 (the "2001 period").
Revenues in the Company's Trade-Winds subsidiary increased $2,743,910 to
$12,776,803 in the 2002 period from $10,032,893 in the 2001 period. The increase
in Trade-Winds revenues of $2,743,910 was primarily attributable to
approximately $9,900,000 related to remediation work performed in the vicinity
of the World Trade Center as a result of the terrorist attack on September 11,
2001 partially offset by decreases in mold remediation projects of approximately
$6,500,000 and a decrease in spill response projects of approximately $650,000.
Revenues in the Company's North Atlantic Laboratories, Inc. ("NAL") subsidiary
increased approximately $75,000, or 50%, to approximately $225,000 in the 2002
period from approximately $150,000 in the 2001 period as a result of work
related to the World Trade Center attack. Revenues in the Company's New York
Testing Laboratories, Inc. ("NYT") subsidiary decreased approximately $147,000
to $0 in the 2002 period from approximately $147,000 in the 2001 period, due to
the discontinuance of NYT operations.

Cost of Revenues

Cost of revenues  increased  $1,595,999 to $7,676,358 in the 2002 period as
compared to $6,080,359 in the 2001 period. This 26% increase was primarily
attributable to the costs associated with remediation work performed in the
vicinity of the World Trade Center as a result of the terrorist attack on
September 11, 2001. Gross profit increased $1,076,080 to $5,324,195, or 41% of
total revenue, in the 2002 period from $4,248,115, or 41% of total revenue, in
the 2001 period. The increase in gross profit was primarily attributable to the
greater sales volume in the 2002 period that resulted from the World Trade
Center related work which was partially offset by an increase in costs of
approximately $700,000 related to a pond rehabilitation project. 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.

                                       11
<PAGE>


Selling, General and Administrative Expenses

Selling,  general  and  administrative  expenses  increased  by  $43,639 to
$1,356,966 in the 2002 period from $1,313,327 in the 2001 period, and
constituted approximately 10% and 13% of revenues in the 2002 and 2001 periods,
respectively. There were no significant changes in selling, general and
administrative expenses between the 2002 period and the 2001 period as the
Company successfully maintained it's overhead level while increasing revenues by
26%.

Expense (Benefit) 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 expense related to variable
accounting treatment for officer options increased by $1,134,855 to an expense
of $1,127,575 in the 2002 period from a benefit of $(7,280) in the 2001 period.
This was due to an increase in the market price of the Company's common stock
and 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  increased  by  $20,819,  or 21%, to $120,807 in the 2002
period from $99,988 in the 2001 period. The increase in interest expense was
primarily attributable to interest charges relating to the conversion of the
accrued and unpaid interest on the Spotless Convertible Note offset by
reductions in LIBOR.

Provision for Income Taxes

The  provision  for  income  taxes  increased  by  $975,915,  or  133%,  to
$1,710,403 in the 2002 period from $734,488 in the 2001 period. The increase was
primarily attributable to the nondeductible nature of the expense related to the
variable accounting treatment of officer options for which there is a 100%
valuation allowance that was partially offset by the utilization of federal and
state net operating losses of approximately $500,000.

Net Income

Net income  decreased  by  $1,104,018,  or 52%, to  $1,009,104  in the 2002
period from  $2,113,122  in the 2001 period.  The decrease was the result of all
the factors discussed above.

Dividends

Dividends on preferred  stock increased by $390,719 to $410,219 in the 2002
period from $19,500 in the 2001 period. As a result of Acquisition Corp.'s
decision to exercise its right to convert its preferred stock and in accordance
with the terms of the Company's Series B preferred stock, an additional
1,149,174 shares of the Company's common stock were issued to Acquisition Corp.
The additional shares of common stock issued to Acquisition Corp. were
calculated based upon a formula that takes into consideration the value of the
Series B preferred stock on the date of issuance and the number of days elapsed
from the date of the issuance of the Series B preferred stock through the
conversion date. The issuance of the additional shares of common stock was
recorded as a dividend of $390,719.

TWENTY-SIX WEEKS ENDED JANUARY 1, 2002 AND JANUARY 2, 2001

Revenue

Total revenues for the twenty-six weeks ended January 1, 2002 (the "year to
date 2002 period") increased by $7,361,988, or approximately 55%, to $20,735,627
from $13,373,639 for the twenty-six weeks ended January 2, 2001 (the "year to
date 2001 period"). Revenues in the Company's Trade-Winds subsidiary increased
approximately $7,800,000 to approximately $20,300,000 in the year to date 2002
period from approximately $12,500,000 in the year to date 2001 period. The
increase in Trade-Winds revenues of approximately

                                       12
<PAGE>

$7,800,000 was primarily attributable to approximately  $12,400,000 related
to remediation work performed in the vicinity of the World Trade Center as a
result of the terrorist attack on September 11, 2001, approximately $1,500,000
in revenues from a mold remediation contract related to a tropical storm in
Houston, Texas, approximately $476,000 in revenues from asbestos remediation
projects, approximately $239,000 from construction projects, $100,000 in
environmental projects and $50,000 in training fees which was partially offset
by decreases in mold remediation projects of approximately $6,248,000 and a
decrease in spill response projects of approximately $837,000. Revenues in the
Company's NAL subsidiary decreased approximately $50,0000, or 11%, to $400,000
in the year to date 2002 period from $450,000 in the year to date 2001 period.
Revenues in the Company's NYT subsidiary decreased approximately $400,000 to $0
in the year to date 2002 period from $400,000 in the year to date 2001 period,
due to the discontinuance of NYT operations.

Cost of Revenues

Cost of revenues  increased  $4,822,303 to  $12,996,891 in the year to date
2002 period as compared to $8,174,588 in the year to date 2001 period. The
increase of $4,822,303, or 59%, was primarily attributable to the costs
associated with remediation work performed in the vicinity of the World Trade
Center as a result of the terrorist attack on September 11, 2001. Gross profit
increased $2,539,685 to $7,738,736 in the year to date 2002 period from
$5,199,051 in the year to date 2001 period. The increase in gross profit was
primarily attributable to the greater revenue that resulted from the World Trade
Center related work. Gross profit percentage decreased to 37% in the year to
date 2002 period from 39% in the year to date 2001 period due to incurred costs
of approximately $700,000 related to a pond rehabilitation project and an
increase in certain insurance costs. 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  $50,756 to
$2,331,116 in the year to date 2002 period from $2,280,360 in the year to date
2001 period, and constituted approximately 11% and 17% of revenues in the year
to date 2002 and year to date 2001 periods, respectively. There were no
significant changes in selling, general and administrative expenses between the
year to date 2002 period and the year to date 2001 period as the Company
successfully maintained it's overhead level while increasing revenues by 55%.

Expense (Benefit) 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 expense related to variable
accounting treatment for officer options increased by $1,437,028 to an expense
of $1,368,020 in the year to date 2002 period from a benefit of $(69,008) in the
year to date 2001 period. This was due to an increase in the market price of the
Company's common stock and 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  increased  by  $13,303,  or 7%, in the year to date 2002
period to $195,282 from $181,979 in the year to date 2001 period. The increase
in interest expense was primarily attributable to interest charges relating to
the conversion of the accrued and unpaid interest on the Spotless Convertible
Note offset by reductions in LIBOR.

Provision for Income Taxes

The  provision  for income  taxes  increased  by  $1,347,577,  or 183%,  to
$2,082,065 in the year to date 2002 period from $734,488 in the year to date
2001 period. The increase was primarily attributable to the nondeductible nature
of the expense related to the variable accounting treatment of officer options
for which there is a 100%


<PAGE>

                                       13

valuation allowance that was partially offset by the utilization of federal
and state net operating losses of approximately $500,000.

Net Income

Net income decreased by $308,615, or 15%, to $1,772,257 in the year to date
2002 period from  $2,080,872  in the year to date 2001 period.  The decrease was
the result of all the factors discussed above.

Dividends

Dividends on preferred  stock increased by $390,719 to $429,719 in the year
to date 2002 period from $39,000 in the year to date 2001 period. As a result of
Acquisition Corp.'s decision to exercise its right to convert its preferred
stock and in accordance with the terms of the Company's Series B preferred
stock, an additional 1,149,174 shares of the Company's common stock were issued
to Acquisition Corp. The additional shares of common stock issued to Acquisition
Corp. were calculated based upon a formula that takes into consideration the
value of the Series B preferred stock on the date of issuance and the number of
days elapsed from the date of the issuance of the Series B preferred stock
through the conversion date. The issuance of the additional shares of common
stock was recorded as a dividend of $390,719.

LIQUIDITY AND CAPITAL RESOURCES

As  of  January  1,  2002,  the  Company  had  an  accumulated  deficit  of
$32,436,038.  The Company has financed its operations to date primarily  through
issuance of debt and equity securities, through short-term borrowings from its
majority shareholder, Spotless Plastics (USA), Inc. ("Spotless") and through
cash generated from operations. The Company also has $680,000 principal amount
of convertible notes that will be due in full on March 15, 2002. In the opinion
of management, the Company expects to have sufficient working capital to fund
current operations and repay the convertible notes and any related accrued
interest on March 15, 2002. However, market conditions and their effect on the
Company's liquidity may restrict the Company's use of cash, which may result in
the Company not making payment on the convertible notes when they become due on
March 15, 2002. In the event that sufficient positive cash flow from operations
is not generated, the Company may need to seek additional financing from
Spotless to satisfy the convertible notes when they become due, although
Spotless is under no legal obligation to provide such funds. The Company
currently has no credit facility for additional borrowing.

The above factors raise  substantial  doubt as to the Company's  ability to
continue as a going concern. The Company's financial statements have been
prepared assuming that the Company will continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

After the terrorist attack on the World Trade Center on September 11, 2001,
the demand for the Company's emergency and catastrophe response services
increased dramatically. As a result of this increased demand, the Company
recorded revenues of approximately $12,400,000 for remediation services
performed in downtown Manhattan from September 13, 2001 through January 1, 2002.
Approximately $10,200,000 of this revenue has been collected by January 1, 2002.
Additionally, the Company continues to perform services related to the terrorist
attack, with the same favorable payment terms, after January 1, 2002. The
Company believes that additional revenues from such services will be generated
in the foreseeable future and that the expected receipt of these revenues will
favorably impact its liquidity, although no assurances can be made as to the
expected volume or impact.

As of July 3, 2001,  the Company owed  Spotless  $1,200,000  on  short-term
loans to fund working capital. During the twenty-six weeks ended January 1,
2002, in order to address cash flow and operational concerns and to fund the
increased payroll that resulted from the greater level of work related to the
World Trade Center attack, the Company borrowed an additional $1,750,000 from
Spotless. During the thirteen weeks ended January 1, 2002, primarily as a result
of cash collected from the World Trade Center projects, the Company repaid
$2,750,000 to Spotless. A balance of $200,000 in loans from Spotless was
outstanding as of January 1, 2002. All current borrowings from Spotless bear
interest at LIBOR plus 1 percent and are secured by all of the Company's assets.

                                       14
<PAGE>

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 January 1, 2002, the Company
owed Spotless $200,000 under this promissory note.

On November 16, 2001, Spotless exercised its right to convert all principal
and accrued and unpaid interest on the $2,000,000 Convertible Promissory Note
(the "Convertible Note") issued to it by the Company in October 1999. As a
result of the conversion of the Convertible Note and the accrued and unpaid
interest, the Company issued 28,555,250 shares of its common stock to Spotless's
wholly-owned subsidiary, Windswept Acquisition Corp. ("Acquisition Corp.") in
full satisfaction of the Convertible Note and the related accrued and unpaid
interest.

Additionally,  on November 16, 2001,  Acquisition Corp. exercised its right
to convert all 9,346 shares of the Company's Series B preferred stock that the
Company issued to it in October 1999. As a result of such conversion and in
accordance with the terms of Company's Series B preferred stock, Acquisition
Corp. was issued 9,346,000 shares of the Company's common stock. As a result of
Acquisition Corp. decision to exercise their right to convert and in accordance
with the terms of the Company's Series B preferred stock, an additional
1,149,174 shares of the Company's common stock were issued to Acquisition Corp.
The additional shares of common stock issued to Acquisition Corp. were
calculated based upon a formula that takes into consideration the value of the
Series B preferred stock on the date of issuance and the number of days elapsed
from the date of the issuance of the Series B preferred stock through the
conversion date. The issuance of the additional shares of common stock was
recorded as a dividend of $390,719. The dividend represents the difference
between the fair market value of the Company's common stock issued on November
16, 2001 and the fair market value of the Company's common stock at the date the
Series B preferred stock was issued.

After giving effect to these conversions,  Spotless currently  beneficially
owns  61,335,107  shares  of  the  Company's  common  stock,   which  represents
approximately  79% of the  Company's  issued  and  outstanding  shares of common
stock.

As a result of the conversion of the Convertible Note,  options to purchase
2,811,575 shares of the Company's common stock held by Michael O'Reilly, the
President and Chief Executive Officer of the Company, immediately vested,
pursuant to the terms of an option agreement between the Company and Mr.
O'Reilly.

Management  believes  the  Company  will  require  positive  cash flow from
operations to meet its working capital needs over the next twelve months. In the
event that positive cash flow from operations is not generated, the Company may
be required to seek additional financing to meet its working capital needs.
Management continues to pursue additional funding sources. 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 is striving to improve its gross
margin and control its selling, general and administrative expenses. There can
be no assurance, however, that changes in the Company's plans or other events
affecting the Company's operations will not result in accelerated or unexpected
cash requirements, or that it will be successful in achieving positive cash flow
from operations or obtaining additional financing. The Company's future cash
requirements are expected to depend on numerous factors, including, but not
limited to: (i) the ability to obtain environmental or related construction
contracts, (ii) the ability to generate positive cash flow from operations, and
the extent thereof, (iii) the ability to raise additional capital or obtain
additional financing, and (iv) economic conditions.

CASH FLOW

Net cash  provided by operating  activities  was  $3,063,391 in the year to
date 2002 period. Accounts receivable increased by $2,490,475 due to billings
related to the World Trade Center related projects. Accounts payable and accrued
expenses and accrued payroll increased $619,095 and $616,838, respectively,
primarily as a result of the World Trade Center related projects. Income taxes
payable increased $988,664 as a result of the increased taxable income for the
period. Cash used for capital expenditures was $399,144 in the year to date 2002
period.

                                       15
<PAGE>

During the twenty-six weeks ended January 1, 2002, in order to address cash
flow and operational concerns and to fund the increased payroll that resulted
from the greater level of work related to the World Trade Center attack, the
Company borrowed $1,750,000 from Spotless. During the thirteen weeks ended
January 1, 2002, primarily as a result of cash collected from the World Trade
Center related projects, the Company repaid $2,750,000 to Spotless. A balance of
$200,000 in loans from Spotless was outstanding as of January 1, 2002. All
current borrowings from Spotless bear interest at LIBOR plus 1 percent 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 year to date 2002 period.

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 market risk
disclosure as reported in the Company's Transition Report on Form 10-K for the
period ended July 3, 2001.

                           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
          Transition Report on Form 10-K for the period from May 1, 2001 through
          July 3, 2001 and to the references therein,  for a discussion of all
          material pending legal  proceedings to which the Company or any of its
          subsidiaries is party.

Item 2.   Changes in Securities
          ---------------------

          Not applicable.

Item 3.   Defaults upon Senior Securities
          -------------------------------

          The  Company is required to pay  quarterly dividends on its Series A
          Convertible  preferred  stock, par value $.01 per share (the "Series A
          Preferred"), which dividends accrue from the initial date of issuance
          of the Series A Preferred, are cumulative and, if not paid when due,
          bear  interest on the unpaid  amount of the past due  dividends at the
          prime rate published in The Wall  Street  Journal  on the date the
          dividend was payable,  plus 3%. As of January 1, 2002, the Company was
          in arrears on its Series A Preferred  dividend  payments  and interest
          thereon in the aggregate amount of approximately  $193,969.  Under the
          terms of the Company's Certificate of  Designations  of the Series A
          Preferred, if the Company fails to make any four consecutive quarterly
          dividend payments on the Series A Preferred,  the majority in interest
          of the  holders of the Series A Preferred have the right to elect an
          additional director to the Company's Board of Directors, to serve as a
          director  until such  accrued and unpaid  dividends  have been paid in
          full.  The Company failed to pay its fifth  consecutive  quarterly
          dividend  payment on December  15, 2001 to the holders of the Series A
          Preferred.

                                       16
<PAGE>

          On January 7, 2002, the Company paid  $194,155 to the holders of the
          Series A Preferred in  satisfaction of all accrued and unpaid dividend
          payments at such time.

Item 4.   Submission of Matters to a Vote of Security Holders
          ---------------------------------------------------

          Not applicable

Item 5.   Other Information
          -----------------

          Not applicable.

Item 6.   Exhibits and Reports on Form 8-K
          --------------------------------

         (a)  Exhibits:

              10.1  Form of Amendment No. 1 dated November 16, 2001 to Security
                    Agreement dated October 29, 1999 between each of the
                    Registrant, Trade-Winds Environmental Restoration, Inc,
                    North American Laboratories, Inc. and New York Testing
                    Laboratories, Inc. and Spotless Plastics (USA), Inc.

              10.2  Promissory Note dated November 16, 2001, issued by the
                    Registrant in favor of Spotless Plastics (USA), Inc.

         (b)  Reports on Form 8-K

              There were no reports on Form 8-K filed during the thirteen week
              period ended January 1, 2002.



                                       17
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.

Dated: February 11, 2002
                                      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
<PAGE>
                                 Exhibit Index

Exhibit
Number    Description
------    -----------

 10.1     Form of Amendment No. 1 dated November 16, 2001 to Security Agreement
          dated October 29, 1999 between each of the Registrant, Trade-Winds
          Environmental Restoration, Inc., North American Laboratories, Inc. and
          New York Testing Laboratories, Inc. and Spotless Plastics (USA) Inc.

 10.2     Promissory Note dated November 16, 2001, issued by the Registrant
          in favor of Spotless Plastics (USA), Inc.


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