UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q/A
                                 Amendment No. 2

(Mark One)

|x|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934

      For the quarterly period ended September 27, 2005

                                       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 principal executive offices) (Zip Code)

                                   (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|

Indicate by check mark whether the registrant is a shell company (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 November
3, 2005 was 33,571,215.


<PAGE>

                                EXPLANATORY NOTE

      This Amendment No.2 on Form 10-Q/A amends and restates certain disclosure
items, including financial statements, in our Quarterly Report on Form 10-Q/A-1
for the quarter ended September 27, 2005, which first amended form was filed on
February 3, 2006. We are filing this Amendment No. 2 principally to revise the
accounting for the debt and equity instruments issued to Laurus Master Fund,
Ltd. ("Laurus") in connection with our transactions with them on June 30, 2005.
Specifically, we have applied derivative accounting to account for certain
embedded derivatives, whose recognition was required due to an insufficiency of
authorized common shares existing as of June 30, 2005 and continuing through
September 29, 2006. On September 29, 2006, we executed an Omnibus Amendment with
Laurus amending the terms of our agreements with Laurus (the "Omnibus
Amendment") and pursuant thereto issued to Laurus an amended and restated
secured convertible term note (the "Amended Note"). By virtue of certain
provisions in the Omnibus Amendment and the Amended Note which significantly
reduces the number of shares potentially issuable to Laurus, as of September 29,
2006, and through the date of the filing of this Amendment, we have a sufficient
number of authorized shares to issue in the event that all of the derivative
securities issued by us are exercised or converted. As a result, we believe that
we will no longer have to apply derivative accounting. We anticipate that in our
Form 10-Q for the three months ended September 30, 2006, the applicable
derivative liability balances will be credited to equity.

      Options and warrants issued to Laurus, which were previously recorded in
equity, after an allocation of the debt proceeds between such instruments and
the convertible note held by Laurus, have now been recorded as derivative
liabilities. In addition, we have recognized a derivative liability related to
the convertible note itself. The derivative liabilities, the calculation of
which required significant estimates and projections of future events, are being
marked to market based on the change in our common stock price as well as other
complex factors. The accounting for these embedded derivatives is discussed in
the notes to the consolidated financial statements as well as Management's
Discussion and Analysis of Financial Condition and Results of Operations in this
Form 10-Q/A-2.

      We identified the need for this amendment in connection with answering
responses to comment letters that we received from the Securities and Exchange
Commission (the "SEC") relating to its review of our Registration Statement on
Form S-1, which we originally filed on October 3, 2005. We withdrew such
Registration Statement on July 7, 2006.

      In the process of preparing this amendment, we discovered that we had not
adopted Statement of Financial Accounting Standards No. 123 (Revised),
Share-Based Payments ("SFAS N0 123R") until the third quarter of fiscal 2006.
SFAS No. 123R was required to be adopted at the beginning of our fiscal year.
Such adoption reflects in the statement of operations for the current year the
pro-forma expense which was previously required to be disclosed in the
footnotes. Also, the amount now included in operations includes the cost of
employment-related options issued to our chief executive officer. The previous
pro-forma disclosure incorrectly omitted such cost. See Note 3 to the
consolidated financial statements.

      On October 5, 2006, we filed a Form 8-K disclosing that we would be
amending each of the three quarterly reports on Form 10-Q we filed for the
fiscal year ended June 30, 2006. Such Form 8-K included the relevant reasons for
the restatements and other related disclosures. The Form 8-K also describes the
Omnibus Amendment and the Amended Note.

      We are also filing amended quarterly reports on Form 10-Q for the second
and third quarters of fiscal 2006.

      We have included as exhibits to this amendment new certifications of our
principal executive officer and principal financial officer and accounting
officer.

      The remaining items contained within this Amendment No. 2 consist of all
other items originally contained in our Quarterly Report on Form 10-Q for the
quarter ended September 27, 2005 substantially in the forms filed on November
21, 2005 and February 3, 2006. Therefore, you should read this amendment
together with other reports and documents that we have filed with the SEC
subsequent to the filing of those forms, bearing in mind however, that we
recently withdrew our Registration Statement on Form S-1. Except as expressly
stated herein, this report continues to speak as of the date of the original
filing and we have not updated the disclosures in this report to speak as of any
later date. Information in those other reports and documents updates and
supersedes some of the information contained in this Amendment. You should not
deem the filing of this amendment to be an admission that our Forms 10-Q and
10-Q/A-1 filed on November 21, 2005, and February 3, 2006, respectively, when
made, included any known, untrue statement of material fact or knowingly omitted
to state a material fact necessary to make a statement in such filing not
misleading.


                                        2

<PAGE>

                         PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

                       WINDSWEPT ENVIRONMENTAL GROUP, INC.
                           CONSOLIDATED BALANCE SHEETS
                      SEPTEMBER 27, 2005 AND JUNE 28, 2005

<TABLE>
<CAPTION>
                                                                                                    September 27,    June 28,
                                                                                                         2005          2005
                                                                                                    -------------   -----------
                                                                                                     (unaudited)         *
                                                                                                      (restated)     (restated)
<S>                                                                                                  <C>            <C>
ASSETS:
CURRENT ASSETS:
  Cash                                                                                               $    147,493   $    512,711
  Accounts receivable, net of allowance for doubtful accounts of $1,707,831 and $1,507,831,
    respectively                                                                                        8,210,155      6,755,338
  Inventory                                                                                               151,367        146,079
  Costs and estimated earnings in excess of billings on uncompleted contracts                             382,755         30,466
  Prepaid expenses and other current assets                                                               797,595         47,253
                                                                                                     ------------   ------------
  Total current assets                                                                                  9,689,365      7,491,847
                                                                                                     ------------   ------------
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $6,546,981
  and $6,386,731, respectively                                                                          3,124,940      2,242,645
OTHER ASSETS:
  Deferred financing costs                                                                              3,210,401             --
  Other                                                                                                   191,025        322,046
                                                                                                     ------------   ------------
  Total other assets                                                                                    3,401,426        322,046
                                                                                                     ------------   ------------
TOTAL                                                                                                $ 16,215,731   $ 10,056,538
                                                                                                     ============   ============
LIABILITIES AND STOCKHOLDERS' DEFICIT:
CURRENT LIABILITIES:
  Embedded derivative liabilities                                                                    $ 26,985,731   $         --
  Accounts payable                                                                                      2,784,638      1,174,840
  Liability for repurchased account receivable                                                            189,197             --
  Accrued expenses                                                                                      2,110,676      1,611,256
  Secured note payable to a related party                                                                      --      5,000,000
  Secured convertible note payable                                                                        863,041             --
  Billings in excess of costs and estimated earnings on uncompleted contracts                              96,000         83,316
  Accrued payroll and related fringe benefits                                                             600,771        528,867
  Current maturities of long-term debt                                                                    208,224        169,612
  Income taxes payable                                                                                    872,437        138,579
  Other current liabilities                                                                               655,993        489,468
                                                                                                     ------------   ------------
  Total current liabilities                                                                            35,366,708      9,195,938
                                                                                                     ------------   ------------
LONG-TERM DEBT:
  Secured note payable                                                                                    500,000             --
  Other                                                                                                   269,533        197,400
                                                                                                     ------------   ------------
  Total long-term debt                                                                                    769,533        197,400
                                                                                                     ------------   ------------
COMMITMENTS AND CONTINGENCIES
Redeemable Common Stock                                                                                        --         76,089
                                                                                                     ------------   ------------
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK, $.01 par value; 1,300,000 shares
  Authorized and outstanding at September 27, 2005 and June 28, 2005                                    1,300,000      1,300,000
                                                                                                     ------------   ------------
STOCKHOLDERS' DEFICIT:
  Series B preferred stock, $.01 par value; 50,000 shares authorized; 0 shares outstanding                     --             --
  Non-designated preferred stock, no par value; 8,650,000 shares authorized; 0 shares outstanding
    at September 27, 2005 and June 28, 2005                                                                    --             --
  Common stock, $.0001 par value; 150,000,000 shares authorized; 33,571,215 shares
    outstanding at September 27, 2005 and 77,936,358 shares outstanding at June 28, 2005                    3,357          7,794
  Additional paid-in-capital                                                                           38,454,768     33,944,017
  Accumulated deficit                                                                                 (59,678,635)   (34,664,700)
                                                                                                     ------------   ------------
  Total stockholders' deficit                                                                         (21,220,510)      (712,889)
                                                                                                     ------------   ------------
TOTAL                                                                                                $ 16,215,731   $ 10,056,538
                                                                                                     ============   ============
</TABLE>

* Derived from audited financial statements

                 See notes to consolidated financial statements.


                                        3

<PAGE>

                       WINDSWEPT ENVIRONMENTAL GROUP, INC.
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                    Thirteen Weeks Ended
                                                                ---------------------------
                                                                September 27,   September 28,
                                                                     2005            2004
                                                                -------------   -------------
                                                                  (restated)
<S>                                                              <C>             <C>
Revenues                                                         $  5,164,339    $  5,478,506
Cost of revenues                                                    4,385,270       4,362,123
                                                                 ------------    ------------
Gross profit                                                          779,069       1,116,383
Operating expenses:
  Selling, general and administrative expenses                      2,900,543       1,232,034
                                                                 ------------    ------------
Loss from operations                                               (2,121,474)       (115,651)
                                                                 ------------    ------------
Other expense (income):
  Mark-to-market loss on embedded derivative liabilities           20,999,559              --
  Interest expense                                                  1,412,780          65,258
  Purchase discounts and financing fees paid to related party              --         145,846
  Loss on partial extinguishment of embedded derivative               449,850              --
    option liability arising from exercise of options
  Other expense (income), net                                          22,054            (799)
                                                                 ------------    ------------
      Total other expense (income)                                 22,884,243         210,305
                                                                 ------------    ------------
Loss before provision for income taxes                            (25,005,717)       (325,956)
Provision for income taxes                                              8,218           2,589
                                                                 ------------    ------------
Net loss                                                          (25,013,935)       (328,545)
Dividends on preferred stock                                           19,500          19,500
                                                                 ------------    ------------
Net loss attributable to common shareholders                     $(25,033,435)   $   (348,045)
                                                                 ============    ============
Basic and diluted loss per common share:                         $       (.76)   $        .00
                                                                 ============    ============
Weighted average number of common shares outstanding:
  Basic and diluted                                                32,888,414      77,936,358
                                                                 ============    ============
</TABLE>

                 See notes to consolidated financial statements.


                                        4

<PAGE>

                       WINDSWEPT ENVIRONMENTAL GROUP, INC.
           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
                                   (RESTATED)

<TABLE>
<CAPTION>
                                                                   Common Stock
                                                            -------------------------    Additional
                                                             Number of                    Paid-in     Accumulated
                                                              Shares       Par Value      Capital        Deficit        Total
                                                            -----------   -----------   -----------   ------------   ------------
<S>                                                         <C>           <C>           <C>           <C>            <C>
Balance at June 28, 2005                                     77,936,358   $     7,794   $33,944,017   $(34,664,700)  $   (712,889)
Spotless Transactions:
    Cancellation of Spotless
    shares, net of shares
    sold to Michael O'Reilly                                (45,865,143)       (4,587)        4,587             --             --
    Early extinguishment of
    Spotless Note, accrued
    interest and
    administrative fees (net
    of tax effect of $731,640)                                       --            --     1,230,228             --      1,230,228
    Surrender of Redemption
    Right with respect to
    Common Stock                                                     --            --        76,089             --         76,089
    Value of Spotless shares
    sold to Michael O'Reilly
    less consideration                                               --            --     1,195,708             --      1,195,708
Options granted to preferred stockholders
  for forbearance of mandatory
  redemption and dividends                                           --            --        44,650             --         44,650
Exercise of 1,500,000 options that had been
  included in embedded option derivative
  liability, recorded at market value at date of exercise     1,500,000           150       584,850             --        585,000
Stock-based compensation                                             --            --     1,394,139             --      1,394,139
Dividends on Series A preferred stock                                                       (19,500)                      (19,500)
Net loss                                                             --            --            --    (25,013,935)   (25,013,935)
                                                             ----------   -----------   -----------   ------------   ------------
Balance at September 27, 2005                                33,571,215   $     3,357   $38,454,768   $(59,678,635)  $(21,220,510)
                                                             ==========   ===========   ===========   ============   ============
</TABLE>

                 See notes to consolidated financial statements.


                                        5

<PAGE>

                       WINDSWEPT ENVIRONMENTAL GROUP, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                     Thirteen Weeks Ended
                                                                                                -----------------------------
                                                                                                September 27,   September 28,
                                                                                                     2005            2004
                                                                                                -------------   -------------
                                                                                                 (Restated)
<S>                                                                                              <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                                       $(25,013,935)     $(328,545)
  Adjustments to reconcile to net cash (used in) provided by operating activities:
    Mark-to-market loss on embedded derivative liabilities                                         20,999,559             --
    Non-cash interest expense on convertible secured note                                             692,951             --
    Loss on exercise of 1,500,000 options                                                             449,850             --
    Depreciation and amortization                                                                     160,250        165,952
    Provision for doubtful accounts, net                                                              200,000        159,332
    Amortization of deferred financing cost                                                           292,809             --
    Amortization of discount on secured convertible note                                              291,252             --
    Stock-based compensation                                                                        1,394,139             --
  Changes in operating assets and liabilities:
    Accounts receivable                                                                            (1,465,620)      (999,315)
    Inventory                                                                                          (5,288)        10,548
    Costs and estimated earnings in excess of billings on uncompleted contracts                      (352,289)       332,075
    Income tax refund                                                                                      --        641,795
    Prepaid expenses and other current assets                                                        (750,342)       (18,786)
    Other assets                                                                                      131,021         (6,000)
    Accounts payable and accrued expense                                                            2,221,087        131,437
    Accrued payroll and related fringe benefits                                                        71,904         33,848
    Other current liabilities                                                                         102,715        351,580
    Billings in excess of costs and estimated earnings on uncompleted contracts                        12,684       (186,489)
                                                                                                 ------------      ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES:                                                 (567,253)       287,432
                                                                                                 ------------      ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                                                                (885,482)       (56,011)
                                                                                                 ------------      ---------
NET CASH USED IN INVESTING ACTIVITIES                                                                (885,482)       (56,011)
                                                                                                 ------------      ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Principal payments of long-term debt                                                                (46,318)       (90,531)
  Proceeds from long-term debt                                                                        157,063             --
  Exercise of stock options                                                                               150             --
  Payments for deferred financing costs                                                            (2,261,510)            --
  Repayment and cancellation of secured note payable to a related party                            (2,761,868)            --
  Proceeds from secured notes payable                                                               6,000,000             --
                                                                                                 ------------      ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                                 1,087,517        (90,531)
                                                                                                 ------------      ---------
NET (DECREASE) INCREASE IN CASH                                                                      (365,218)       140,890
CASH - BEGINNING OF PERIOD                                                                            512,711         63,562
                                                                                                 ------------      ---------
CASH - END OF PERIOD                                                                             $    147,493      $ 204,452
                                                                                                 ============      =========
Cash paid during the period for:
  Interest                                                                                       $     91,477      $ 168,726
                                                                                                 ============      =========
  Income taxes                                                                                   $         --      $      --
                                                                                                 ============      =========
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Recognition of embedded derivative liabilities                                                   $  6,121,172      $      --
                                                                                                 ============      =========
Recognition of discount on secured convertible note                                              $  5,428,211      $      --
                                                                                                 ============      =========
Capitalized gain on extinguishment of secured note payable - related party                       $  1,230,228      $      --
                                                                                                 ============      =========
Financing cost related to guaranties of CEO remunerated through sale of discounted shares        $  1,195,708      $      --
                                                                                                 ============      =========
Account receivable repurchased in connection with refinancing                                    $    189,197      $      --
                                                                                                 ============      =========
Property and equipment acquired through financing                                                $    157,063      $      --
                                                                                                 ============      =========
Paid-in capital attributable to reduction in derivative option liability upon option exercise    $    135,000      $      --
                                                                                                 ============      =========
Capitalized cancellation of put right relating to redeemable common stock                        $     76,089      $      --
                                                                                                 ============      =========
Financing cost related to issuance of options to preferred stockholders                          $     44,650      $      --
                                                                                                 ============      =========
</TABLE>

                 See notes to consolidated financial statements.


                                        6

<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 subsidiaries, Trade-Winds Environmental
      Restoration, Inc. ("Trade-Winds") and North Atlantic Laboratories, Inc.
      All inter-company accounts and transactions have been eliminated in
      consolidation. The unaudited consolidated financial statements have been
      prepared by the Company in accordance with accounting principles generally
      accepted in the United States of America ("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
      September 27, 2005, the results of operations for the thirteen weeks ended
      September 27, 2005 and September 28, 2004 and cash flows for the thirteen
      weeks ended September 27, 2005 and September 28, 2004, have been included.
      Certain prior period amounts have been reclassified to conform to the
      September 27, 2005 presentation.

      The results for the thirteen weeks ended September 27, 2005 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 June 28,
      2005, as amended.

      The accompanying consolidated financial statements have been prepared
      assuming that the Company will continue as a going concern. The Company
      has incurred recurring losses from operations, has a stockholders'
      deficit, and is experiencing difficulty in generating sufficient cash flow
      to meet its obligations and sustain its operations, which raises
      substantial doubt about the Company's ability to continue as a going
      concern. Management's plans in regard to these matters are also described
      in Note 7. The consolidated financial statements do not include any
      adjustments that might result from the outcome of this uncertainty.

2.    RESTATEMENT - As more fully described in Note 7, on June 30, 2005, the
      Company entered into a financing transaction with Laurus Master Fund, Ltd.
      ("Laurus") pursuant to the terms of a securities purchase agreement and
      related documents, as subsequently amended. An integral part of the
      transaction, among others, was the issuance to Laurus of an option to
      purchase 30,395,179 shares of common stock, exercisable at $0.0001 per
      share, and a warrant to purchase 13,750,000 shares of common stock,
      exercisable at $0.10 per share.

      The Company initially recognized the value of these equity instruments in
      accordance with Accounting Principles Board Opinion No. 14 and Emerging
      Issues Task Force (EITF) Consensuses 98-5 and 00-27. Under such method,
      the intrinsic value of the options and the fair value of the warrants were
      calculated and the proportionate values of the resulting debt and equity
      components were recognized as debt discounts with equivalent credits to
      equity. The beneficial conversion features of the warrants, including the
      effective values under EITF 00-27, were also recognized. All of the
      discounts were initially being amortized over the life of the debt in
      accordance with the latter pronouncement.

      The September 27, 2005 interim financial statements were previously
      restated to account for additional deferred financing costs, certain
      corrections to the value of the warrant and the beneficial conversion
      feature, adjustments to the amount of liabilities forgiven by the prior
      lender, as well as the correction of the tax effects related thereto, and
      corrections to the value of shares issued to the Company's President and
      CEO. The effect of all such adjustments was to increase the net loss for
      the period by $81,660.

      The Company has now determined that principally due to an insufficiency of
      authorized common shares existing as of June 30, 2005 and continuing
      through September 29, 2006 as well as the nature of various terms in the
      secured convertible note and related agreements, the initial approach to
      the accounting for the equity instruments as well as the secured
      convertible note issued to Laurus itself was incorrect. In accordance with
      SFAS No. 133, Accounting for Derivatives and Hedging Activities, and EITF
      Consensus 05-2, such insufficiency of authorized common shares as well as
      the potential future actions by the lender/holder prohibits the
      recognition of the option and warrant in equity, thereby relegating them
      to liability classification with embedded derivatives. Further, the
      attributes of the secured convertible note, together with the authorized
      share insufficiency, requires application of derivative accounting to
      account for the resulting embedded derivative in the note as well as those
      embedded in the option and the warrant. These derivative liabilities, the
      measurement of which requires significant estimates and projections of
      future events, are being marked to market based on the change in the
      Company's common stock prices as well as other complex factors, discussed
      in Note 7.


                                        7

<PAGE>

      If the authorized share insufficiency ceases to apply, the applicable
      derivative liability balances will be credited to equity. The Company
      believes that by virtue of the Omnibus Amendment, dated September 29,
      2006, entered into between Laurus and the Company, as well as the amended
      and restated secured convertible term note issued to Laurus pursuant
      thereto, the number of authorized shares as of September 29, 2006 is
      sufficient. See Explanatory Note.

      The Company has also restated its financial statements to record
      $1,394,139 of stock-based compensation expense reflecting both the
      adoption of SFAS No. 123R at the beginning of the current fiscal and the
      inclusion therein of employment-related stock options issued to the
      Company's chief executive officer. See Note 3.

      For the thirteen weeks ended September 27, 2005, the effects of the
      restatement on our balance sheet and statement of operations are as
      follows:

<TABLE>
<CAPTION>
                                           As Previously   Restatement    As Restated
Financial Statement Caption                  Presented     Adjustment       Herein
----------------------------------------   -------------  ------------   ------------
                                                            Increase
Balance Sheet                                              (Decrease)
<S>                                         <C>           <C>            <C>
Current Assets                              $  9,689,365  $         --   $  9,689,365
                                            ------------  ------------   ------------
Total Assets                                $ 16,215,731  $         --   $ 16,215,731
                                            ============  ============   ============
Current Liabilities:
  Embedded derivative liabilities           $         --  $ 26,985,731   $ 26,985,731
  Secured convertible debenture                  326,414       536,627        863,041
                                           ------------  ------------   ------------
Total Current Liabilities                      7,844,350    27,522,358     35,366,708
Long-Term Liabilities
  Secured convertible debenture                  718,110      (718,110)            --
                                            ------------  ------------   ------------
Total Liabilities                              9,331,993    26,804,248     36,136,241
                                            ------------  ------------   ------------
Stockholders' Equity:
  Common stock                                     3,375           (18)         3,357
  Additional paid-in capital                  41,566,504    (3,111,736)    38,454,768
  Accumulated deficit                        (35,986,141)  (23,692,494)   (59,678,635)
                                            ------------  ------------   ------------
Total Stockholders' Equity (Deficit)           5,583,738   (26,804,248)   (21,220,510)
                                            ------------  ------------   ------------
Total Liabilities and Stockholders'
  Equity (Deficit)                          $ 16,215,731  $         --   $ 16,215,731
                                            ============  ============   ============
Statement of Operations
Revenues                                    $  5,164,339  $         --   $  5,164,339
                                            ------------  ------------   ------------
Gross profit                                     779,069            --        779,069
                                            ------------  ------------   ------------
Total operating expenses                       1,506,404     1,394,139      2,900,543
                                            ------------  ------------   ------------
Loss from operations                             727,335     1,394,139      2,121,474
                                            ------------  ------------   ------------
Other expense (income):
  Mark-to-market loss on embedded
    derivative liabilities                            --    20,999,559     20,999,559
  Interest expense                               563,834       848,946      1,412,780
  Loss on partial extinguishment of
    embedded derivative option liability
    arising from exercise of options                  --       449,850        449,850
                                            ------------  ------------   ------------
Total other expense (income)                     585,888    22,298,355     22,884,243
                                            ------------  ------------   ------------
Loss before provision for income taxes        (1,313,223)  (23,692,494)   (25,005,717)
                                            ------------  ------------   ------------
Net loss                                    $ (1,321,441) $(23,692,494)  $(25,013,935)
                                            ------------  ------------   ------------
Net loss attributable to common
  stockholders                              $ (1,340,941) $(23,692,494)  $(25,033,435)
                                            ============  ============   ============
Basic and diluted loss per share            $      (0.04) $      (0.72)  $      (0.76)
                                            ============  ============   ============
Basic and diluted weighted average
  shares outstanding                          34,716,071    (1,827,657)    32,888,414
                                            ============  ============   ============
</TABLE>


                                        8

<PAGE>

      The effect of applying derivative accounting was to increase the net loss
      for the period by $22,298,355, principally due to the mark-to-market loss
      of $20,999,559 on the embedded derivative liabilities. For further
      information on the assumptions, estimates and methods used to measure the
      derivative liabilities, see Note 7.

3.    STOCK-BASED COMPENSATION - The Company's three stock option plans, which
      are shareholder approved, permit the grant of share options to its
      employees for up to 5,150,000 shares of common stock as stock
      compensation. All stock options under the plans are granted at the fair
      market value of the common stock at the grant date. Employee stock options
      vest immediately and generally expire 10 years from the grant date.

      The Company has restated its financial statements for the thirteen weeks
      ended September 27, 2005 to reflect the adoption, as of June 29, 2005, of
      Financial Accounting Standard No. 123 (Revised) "Share Based Payment"
      ("SFAS 123R"). This statement requires the Company to expense the cost of
      employee services received in exchange for an award of equity instruments
      using the fair-value-based method. The new standard replaces SFAS No. 123,
      Accounting for Stock-Based Compensation, and supersedes Accounting
      Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to
      Employees, and related interpretations. In addition, the Company adheres
      to the guidance set forth within SEC ("SEC") Staff Accounting Bulletin
      ("SAB") No. 107, which provides the Staff's views regarding the
      interaction between SFAS No. 123(R) and certain SEC rules and regulations
      and provides interpretations with respect to the valuation of share-based
      payments for public companies.

      In adopting this standard, the Company is utilizing the modified
      prospective method, under which the provisions are applied to new awards
      and to awards modified, repurchased or cancelled after the required
      effective date. Additionally, compensation cost for the portion of awards
      for which the requisite service has not been rendered that are outstanding
      as of the required effective date are recognized as the requisite service
      is rendered on or after the required effective date. The compensation cost
      for that portion of awards is based on the grant-date fair value of those
      awards. For the applicable periods which precede the standard's effective
      date, a pro-forma presentation is provided, similar to the disclosure
      required under the prior reporting standards.

      Prior to June 29, 2005, the Company accounted for similar transactions in
      accordance with APB No. 25 which employed the intrinsic value method of
      measuring compensation cost. Accordingly, no compensation cost, was
      recognized in the consolidated statements of operations. In accordance
      with SFAS No. 123, the Company disclosed certain pro-forma amounts as if
      the fair value approach of SFAS No. 123 had been applied. The Company
      complied with these disclosure requirements for all applicable periods
      prior to June 29, 2005.

      Stock option compensation expense in fiscal 2006 is the estimated fair
      value of options granted amortized on a straight-line basis over the
      requisite vesting period for entire portion of the award. The following
      table addresses the additional disclosure requirements of SFAS 123(R) in
      the period of adoption. The table illustrates the effect on net income and
      earnings per share as if the fair value recognition provisions of SFAS No.
      123R had been applied to all outstanding and unvested awards in the prior
      year comparable period. For comparison purposes, the current period, which
      reflects the adoption of the standard, is also shown:

                                              Thirteen Weeks Ended
                                         -----------------------------
                                         September 27,   September 28,
                                              2005            2004
                                         -------------   -------------
                                          (Restated)
Net loss as reported (including
  stock-based compensation
  of $1,394,139 in 2005)                  $(25,013,935)    $(328,545)
Add:  Stock-based employee
  compensation cost in 2004
  determined under the fair value
  method, net of related tax effects               --        (25,849)
                                          ------------     ---------
Net loss (2004 - pro-forma)               $(25,013,935)    $(354,394)
Basic and diluted loss per share:
  As reported                             $       (.76)    $     .00
  Pro forma (2004)                                 N/A     $     .00


                                        9

<PAGE>

      The amount of $1,394,139 noted parenthetically above for 2005 exceeds the
      amount previously disclosed as pro-forma expense by $1,337,889, due to the
      prior inadvertent omission of 15,469,964 common stock purchase options
      that had been issued to the Company's chief executive officer on June 30,
      2005, the second day of the current fiscal year. The fair value of these
      options, determined in accordance with SFAS No. 123R, is now included in
      operations. See Note 7. The effect of the correction on loss per share was
      an increase of $0.04.

4.    NET LOSS PER COMMON SHARE -Basic and diluted loss per common share was
      calculated for all periods in accordance with the requirements of
      Statement of Financial Accounting Standards No. 128, "Earnings per Share".
      The following table sets forth the computation of the basic and diluted
      loss per share for the thirteen weeks ended September 27, 2005 and
      September 28, 2004, respectively:

                                             Thirteen Weeks Ended
                                         -----------------------------
                                         September 27,   September 28,
                                              2005            2004
                                         -------------   -------------
Numerator:                                 (Restated)
Net loss attributable to common
  Shareholders                            $(25,013,935)   $  (348,045)
Denominator:
  Share reconciliation:
  Shares used for basic loss
    per share                               32,888,414     77,936,358
  Effect of dilutive items:
    Stock options                                   --             --
    Convertible securities                          --             --
  Shares used for diluted loss
    per share                               32,888,414     77,936,358
Loss per share:
  Basic and diluted                       $       (.76)   $       .00

      The diluted loss per share for the thirteen week period ended September
      27, 2005 excludes from the calculation 85,876,663 shares issuable upon the
      exercise of stock options and warrants and 67,966,667 shares issuable upon
      the conversion of convertible securities, respectively. These shares are
      excluded due to their anti-dilutive effect as a result of the Company's
      net loss during this period. Taking into account the Company's 150,000,000
      share authorization, the maximum number of additional shares that could
      have been outstanding during the period was 117,111,586.

5.    PROVISION FOR INCOME TAXES - The provision for income taxes for the
      thirteen week periods ended September 27, 2005 and September 28, 2004
      consists of the following:

                                              Thirteen Weeks Ended
                                         -----------------------------
                                         September 27,   September 28,
                                             2005             2004
                                         -------------   -------------
Federal - current                            $   --          $   --
State - current                               8,218           2,589
                                             ------          -------
Total                                        $8,218          $2,589

      The effective rate for income taxes differs from the statutory rate
      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.

      The Company also has a tax liability of $686,893 in connection with the
      cancellation of a secured note payable to a related party, which has been
      credited to additional paid-in capital, as more fully described in Note 6.

6.    CONTINGENCIES - On August 5, 2004, the Company commenced an action in the
      New York State Supreme Court, County of New York, seeking to collect
      approximately $1,255,000 of contractual billings relating to a large roof
      tar removal project. On October 15, 2004, the Economic Development
      Corporation filed an answer, denying the Company's claims. On November 4,
      2004, the Economic Development Corporation filed an amended answer denying
      the Company's claims and asserting counterclaims in unspecified amounts
      seeking liquidated damages, reimbursement for consultant's fees and breach
      of contract. The case is currently in pre-trial discovery. This aggregate
      amount of $1,255,000 was recorded when billed as revenues of $32,561,
      $726,257 and $496,182 during the Company's fiscal years ended July 2,
      2002, July 1, 2003 and June 29, 2004, respectively, and is included in the
      Company's accounts receivable because management believes that the
      realization of the full amount thereof is probable.


                                       10

<PAGE>

      In April 2003, the Company commenced a remediation project in New York
      City for a local utility to remove sediment from an oil storage tank.
      During the course of the project, the sediment in the tank was found to be
      substantially different than the sediment that the customer represented to
      be in the tank prior to the inception of the project. The Company
      continued to work on the project so as not to default on the terms which
      it understood to exist with the customer. The additional costs incurred to
      remove this matter were approximately $1,600,000. As of June 28, 2005, the
      Company recognized revenue of approximately $1,700,000 with respect to the
      original scope of this project. All amounts due under the original
      contract have been paid. The Company has not recognized the revenue
      associated with its claim because the amount thereof is not presently
      reliably estimable. The project has been substantially completed and the
      customer has refused to acknowledge its liability for these additional
      charges billed. On October 22, 2004, the Company commenced an action
      against a local utility company in the New York State Supreme Court,
      County of New York, claiming that it is entitled to approximately
      $2,000,000 of contractual billings and related damages in connection with
      this matter. On December 6, 2004, the local utility company filed an
      answer, denying its claims. The case is currently in pre-trial discovery.

      On April 16, 2002, two customers commenced an action against the Company
      and Michael O'Reilly, the Company's CEO, in the Supreme Court of the State
      of New York, County of New York, claiming that they are entitled to
      approximately $4,400,000 of damages relating to alleged breaches of a
      contract for a residential construction project. On May 7, 2002, the
      Company filed an answer denying the plaintiffs' claims and seeking
      approximately $45,418 in a counterclaim for uncollected accounts. The
      Company believed it had meritorious defenses and that the likelihood of an
      unfavorable outcome was remote. On November 1, 2005, the Company settled
      this matter by agreeing to pay $60,000 to the plaintiffs in six equal
      monthly installments beginning December 1, 2005.

      The Company is a plaintiff in approximately 20 lawsuits, including those
      described above, claiming an aggregate of approximately $5,000,000
      pursuant to which it is seeking to collect amounts it believes are owed to
      it by customers, included in its accounts receivable, primarily with
      respect to changed work orders or other modifications to its scope of
      work. The defendants in these actions have asserted counterclaims for an
      aggregate of approximately $500,000.

      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.    FINANCING AND RELATED PARTY TRANSACTIONS - As of June 28, 2005, the
      Company owed its parent company, Spotless Plastics (USA) Inc., $5,000,000,
      collateralized by all of the Company's assets. Also at that date, Spotless
      was due payment from third parties for accounts receivable in the amount
      of $158,469 purchased under its accounts receivable agreement with the
      Company, dated February 5, 2004. As of such date, Spotless had purchased
      from the Company an aggregate amount of its accounts receivable equaling
      $4,991,252 at an aggregate purchase discount of $911,202, for an aggregate
      purchase price of $4,080,050. Pursuant to the accounts receivable finance
      agreement, Spotless was able to purchase certain of the Company's accounts
      receivable without recourse for cash, subject to certain terms and
      conditions. Pursuant to an administrative services arrangement, Spotless
      also provided the Company with certain administrative services including
      the services of its former vice president of finance and administration.
      During the fiscal 2005, Spotless charged the Company an administrative fee
      of $84,138, which was unpaid and included in accrued expenses at June 28,
      2005. On June 30, 2005, Spotless agreed to forgive the $84,138 in
      administrative fees that was outstanding.

      As discussed below, on June 30, 2005, the Company borrowed $5,000,000 from
      Laurus. From the loan proceeds, $2,750,000 was repaid to Spotless. The
      Company also issued a subordinated secured promissory note to Spotless in
      the principal amount of $500,000, bearing interest at LIBOR plus 1%. This
      note requires payments of principal and interest of $50,000 commencing
      July 1, 2007 until all amounts due thereunder are fully paid, so long as
      the Company is not in default on the Laurus note. The note the Company
      issued to Spotless, together with the $2,750,000 payment to Spotless
      referred to above, fully satisfied all of the Company's financial
      obligations to Spotless.

      In connection with this financing transaction, the Company, along with
      Spotless, terminated the account receivable finance agreement between
      them, except with respect to the Company's obligation to continue to
      collect and remit payment of accounts receivable that Spotless purchased
      under the agreement. As part of the transactions, Spotless assigned to the
      Company an account receivable with a balance of $189,197 and to the
      Company agreed to pay this amount to Spotless no later than June 30, 2006.


                                       11
<PAGE>

      On June 30, 2005, the Company entered into the financing transaction with
      Laurus, pursuant to a securities purchase agreement, as amended, and
      related documents. Under the terms of the transaction, the Company issued
      to Laurus:

            o    a three-year secured convertible term note, dated June 30,
                 2005, in the principal amount of $5,000,000. The note bears
                 interest at the prime rate as published in the Wall St. Journal
                 plus 2% (but not to less than 7.25%), decreasing by 2% (but to
                 not less than 0%) for every 25% increase in the market price
                 (as defined therein) of the Company's common stock above the
                 fixed conversion price of $.09 following the effective date(s)
                 of the registration statement or registration statements
                 covering the shares of the Company's common stock underlying
                 the note and the warrant issued to Laurus;

            o    pursuant to the terms of an option agreement, dated June 30,
                 2005, a twenty-year option to purchase 30,395,179 shares of
                 the Company's common stock at a purchase price of $0.0001 per
                 share; and

            o    pursuant to the terms of a common stock purchase warrant, dated
                 June 30, 2005, a seven-year common stock purchase warrant to
                 purchase 13,750,000 shares of the Company's common stock at a
                 purchase price of $0.10 per share.

            o    Under the accounting methodology initially employed, as
                 discussed in Note 2, recognition of actual and effective
                 beneficial conversion features under EITF Consensuses 98-5 and
                 00-27 aggregating $4,401,854 resulted in the $5,000,000 note
                 being recorded at $598,146.

      After consummating the transaction on June 30, 2005 and prior to September
      27, 2005, Laurus subsequently provided additional financing to the Company
      on the same terms and conditions as follows:

            o    On July 13, 2005, Laurus loaned the Company an additional
                 $350,000, and the Company amended and restated the note, to be
                 in the principal amount of $5,350,000. The shares issuable upon
                 conversion of the face value of this amended and restated Note
                 were initially recorded with a beneficial conversion feature
                 valued at $38,889, which was credited to additional paid-in
                 capital. The remaining $311,111 was initially added to the
                 carrying value of the Note on the Company's balance sheet.

            o    On September 9, 2005, Laurus loaned the Company an additional
                 $650,000, and the Company further amended and restated the Note
                 to be in the principal amount of $6,000,000. The shares
                 issuable upon conversion of the additional face value of this
                 amended and restated Note were initially recorded with a
                 beneficial conversion feature amounting to $650,000, which was
                 credited to additional paid-in capital. As a result, the
                 initial carrying value thereof was $0.

      Under the accounting methodology originally employed, the three tranches
      of the $6,000,000 note, issued in the first quarter of fiscal 2006, were
      recorded at an aggregate value of $909,257. The aggregate discount of
      $5,090,743 was being amortized over the three-year note term. As discussed
      in Note 2 and below, the accounting for the note has been changed and the
      financial statements as of and for the three months ended September 27,
      2005 restated herein to reflect the embedded derivatives related to the
      financing and derivative accounting under SFAS No. 133 and EITF 00-27 has
      been applied.

      On October 6, 2005, Laurus loaned the Company an additional $1,350,000,
      and the Company further amended and restated the note to be in the
      principal amount of $7,350,000. Under the previous accounting, the shares
      issuable upon conversion of the face value of this additional tranche were
      recorded with a beneficial conversion feature amounting to $1,350,000,
      which was credited to additional paid-in capital. As a result, the initial
      carrying value of the fourth tranche, recorded in the second fiscal
      quarter of 2006, was $0. As noted in the previous paragraph, this
      accounting has been changed to reflect the embedded derivatives related to
      the financing.

      The convertible note, in the principal amount of $7,350,000 as of December
      1, 2005, is the only note issued to Laurus by the Company that is
      currently outstanding. As a result of applying the derivative accounting
      referred to above, embedded derivative liabilities related to the note,
      the option and the warrant were recognized in the initial aggregate amount
      of $6,121,172. Also, a discount in the amount of $5,428,211 related to the
      $6,000,000 note was recorded.

      In conjunction with the Laurus transactions, the Company entered into a
      registration rights agreement, as amended, which obligated it, among other
      things, to file its initial registration statement on Form S-1 with the
      SEC on or before November 22, 2005 or be subject to a liquidated damages
      claim. Laurus waived the liquidated damages during the periods covered by
      this Form 10-Q.


                                       12

<PAGE>

      During the quarter ended September 27, 2005, Laurus exercised a portion of
      its option and purchased 1,500,000 shares of common stock of the Company
      at $0.0001 per share, when the market value of the Company's common stock
      was $0.39 per share. This exercise reduced the embedded derivative
      liability related to the option by $135,000 (the fair value of the stock
      at the date the option were issued) and also resulted in a loss on the
      exercise in the amount of $449,850 or $0.2999 per share (the difference
      between the fair value at the date of exercise and issuance, less the
      $0.0001 per share exercise price).

      For the quarterly period ended September 27, 2005, application of
      derivative accounting resulted in a mark-to-market loss of $20,999,559.
      Total embedded derivative liabilities at September 27, 2005 were
      $26,985,731 as follows:

Convertible note, convertible at $0.09 per share   $12,912,822
Option, exercisable at $0.0001 per share             9,535,409
Warrant, exercisable at $0.10 per share              4,537,500
                                                   -----------
Total                                              $26,985,731
                                                   ===========

      In addition to the loss on the option exercise and the mark-to-market loss
      on the embedded derivative liabilities, the Company recognized additional
      interest expense of $848,946. The net result of the restatement related to
      derivative accounting was to increase net loss by $22,298,355 and loss per
      share by $0.68.

      In calculating the derivative liabilities, the following factors were
      projected over various periods through the June 30, 2008 maturity date of
      the note:

            o    the prime interest rate was projected to increase 0.25% per
                 quarter for the first year;

            o    the future volatility of common stock was projected at 150%;

            o    the stock price annual growth rate was estimated at the cost of
                 equity;

            o    a default on registration requirements was projected at 5.0%;

            o    other forms of default were projected at 5.0% initially,
                 increasing 0.1% monthly;

            o    the availability of alternative financing to redeem the note,
                 if exercise of redemption option was triggered, starting at 0%,
                 increasing monthly by 1% to a maximum of 25%;

            o    the twenty-two day trading volume remaining flat; and

            o    the weighted average reset price projected at $0.0899

      On June 30, 2005, Messrs. Peter Wilson, John Bongiorno, Ronald Evans and
      Brian Blythe, who were nominees of Spotless, resigned as directors of the
      Company, and Mr. Charles L. Kelly, Jr., also a Spotless nominee, resigned
      as the Company's chief financial officer and as a director. In addition,
      Mr. Joseph Murphy, an employee of Spotless, resigned as the Company's
      secretary and vice president of finance and administration. Pursuant to a
      transition services agreement, Spotless agreed to provide the services of
      Mr. Murphy to the Company, in the following areas:

            o    administration;

            o    accounting, finance and risk management; and

            o    assisting in the preparation and review of its reports filed
                 with the SEC

      Such agreement provided for a six-month transitional period, with a fee of
      $5,000 per month and a payment of $25,000 to Mr. Murphy at the end of such
      period.

      On June 30, 2005, Spotless, through one of its wholly owned subsidiaries,
      sold 15,469,964 shares of common stock of the Company to Michael O'Reilly,
      the Company's president and chief executive officer, in consideration for
      a non-recourse ten-year balloon promissory note in the principal amount of
      $120,500 issued by Mr. O'Reilly to Spotless, bearing interest at LIBOR
      plus 1%. Spotless also surrendered its remaining 45,865,143 shares to the
      Company for cancellation, resulting in a credit of $4,587 to additional
      paid-in capital.

      Mr. O'Reilly issued a personal guaranty to Laurus for $3,250,000 of the
      note due to it.


                                       13

<PAGE>

      In addition, the Company issued a ten-year option, exercisable at $.09 per
      share to Mr. O'Reilly to purchase 15,469,964 shares of common stock in
      connection with his:

            o    agreement to a new employment agreement, which (a) does not
                 include a put right that existed in his old employment
                 agreement requiring the Company, under certain circumstances,
                 to buy his shares of common stock and shares underlying his
                 options, and (b) calls for a base salary of $285,000 per year
                 and a bonus equal to 2.5% of the Company's pre-tax income, as
                 defined in the employment agreement; and

            o    agreement to personally guarantee the Company's bonding
                 obligations,

      each of the above was a condition precedent to the consummation of the
      financing transaction with Laurus.

      The accompanying financial statements have been restated to include in
      operations the $1,337,889 fair value of the employment-related option to
      purchase 15,469,964 shares, calculated in accordance with SFAS No.123R.
      See Note 3. No portion of this option was allocated to Mr. O'Reilly's
      guaranty to Laurus.

      On May 24, 2005, the Company issued to Michael O'Reilly non-plan five-year
      options, exercisable at $.1875 and $0.01 per share, to purchase 250,000
      and 2.000,000 shares of common stock, respectively. These options, issued
      in connection with his employment as the Company's president and chief
      executive officer, were recorded based on their intrinsic value. The
      Company recognized a related expense of $100,000 pursuant to APB No. 25,
      which was still in effect at the date these options were granted.

      On June 30, 2005, the Company issued ten-year options, exercisable at $.09
      per share, to its series A convertible stock preferred stockholders,
      including Dr. Kevin Phillips, one of its directors, to purchase an
      aggregate of 500,000 shares of its common stock. The fair value of these
      options, $44,650, was recorded as deferred financing costs and a credit to
      additional paid-in capital. The Company also agreed to pay out of legally
      available funds accrued and unpaid dividends in an aggregate of (i)
      $35,000 to the series A convertible preferred stockholders, on each June
      30, 2005, September 30, 2005 and December 30, 2005 and (ii) $50,000 to the
      series A convertible preferred stockholders on February 28, 2007. In the
      aggregate, this was in consideration for their agreement to:

            o    propose and vote in favor of an amendment to the Company's
                 certificate of incorporation in order to accommodate the full
                 issuance of the shares of common stock underlying the secured
                 convertible note, the option and warrant the Company issued to
                 Laurus;

            o    postpone their right, upon six months' notice after February
                 2007, to require the Company to redeem their series A
                 convertible preferred stock, until the earlier of six months
                 after repayment of the note or June 30, 2010;

            o    defer receipt of dividend payments on the series A convertible
                 preferred stock due after June 30, 2005, until the earlier of
                 six months after repayment of the note or June 30, 2010; and

            o    forbear from appointing a second director until the earlier of
                 (a) June 30, 2008 or (b) the repayment in full of the note.

      On June 30, 2005, Michael O'Reilly and the series A convertible preferred
      stock stockholders, including Dr. Kevin Phillips, a director, agreed,
      pursuant to a forbearance and deferral agreement to which the Company is a
      party, to propose and vote in favor of, at the Company's next annual
      shareholders meeting to be held by a specified date, an amendment to the
      Company's certificate of incorporation in order to accommodate the full
      issuance of the shares of common stock underlying the note, the option and
      warrant the Company issued to Laurus. In addition, Mr. O'Reilly, the
      series A convertible preferred stock stockholders and Anthony P. Towell, a
      director, entered into lock-up agreements with Laurus that prohibit a
      disposition of their shares of common stock and any and all related
      derivative securities until the earlier of (a) the repayment in full of
      the note the Company issued to Laurus or (b) June 30, 2010.

      On December 6, 2004, the Company issued a ten-year option, exercisable at
      $0.035 per share, to Dr. Kevin Phillips to purchase 100,000 shares under
      the Company's 2001 Equity Incentive Plan in connection with his services
      as director.

      As a result of these transactions, the Company has recorded deferred
      financing costs as follows:

                               Item                                     Amount
------------------------------------------------------------------   -----------
Transactional, insurance costs and professional fees                  $2,262,852
Deemed cost to the Company of the 15,469,964 shares of common
  stock sold by Spotless to the Company's CEO                          1,195,708
Options granted to preferred stockholders for forbearance of
  redemption and other rights                                             44,650
                                                                      ----------
Total recognized                                                      $3,503,210
Amortization of deferred costs for the thirteen weeks ended
  September 27, 2005                                                     292,809
                                                                      ----------
Deferred financing costs, net                                         $3,210,401
                                                                      ==========


                                       14

<PAGE>

      On May 24, 2005, the Company issued a non-plan ten-year option,
      exercisable at $0.06 per share, to Anthony P. Towell to purchase 250,000
      shares in connection with his service on the then-existing special
      committee of the Company. On December 6, 2004, the Company issued a
      ten-year option exercisable at $0.035 per share to Mr. Towell under its
      2001 Equity Incentive Plan in connection with his service as a director of
      the Company.

      On December 16, 1998, the Company entered into an operating lease
      agreement with Michael O'Reilly, its president and chief executive
      officer. Pursuant to the terms of the arrangement that expired in December
      2002 and has continued on a month-to-month basis thereafter, the Company
      leases a forty-two foot custom Topaz boat for monthly rental payments of
      $5,000. The leasing arrangement was necessitated by a marine assistance
      contract that expired on December 31, 2000, although the arrangement
      continues to provide the Company with its largest floating vessel capable
      of handling specialty equipment and facilitating an offshore support crew.
      The Company is responsible for all taxes, insurance and repairs pertaining
      to this boat.

      The Company had an oral understanding with Michael O'Reilly pursuant to
      which the Company paid the full carrying costs, including mortgage
      payments, of a condominium that he beneficially owned and that the Company
      used for marketing and employee-relations purposes. The full carrying
      costs during the Company's fiscal years ended June 28, 2005 and June 29,
      2004 were approximately $7,150 and $17,800, respectively. In connection
      with this arrangement, the Company also provided mitigation and
      restoration goods and services to Mr. O'Reilly in connection with severe
      water damage caused by a failed water heater at the condominium that he
      beneficially owned and which he allowed the Company to use for marketing
      and employee-relations purposes. In connection with these services, the
      Company's entire direct costs and allocated overhead, without a markup,
      equaled approximately $56,780.

      In February 1997, the Company issued 650,000 shares of redeemable
      convertible preferred stock to Dr. Kevin Phillips, a director and an
      additional 650,000 shares of redeemable convertible preferred stock to a
      business partner of Dr. Phillips. Preferred stock dividends of $19,500 are
      accrued quarterly, but no dividends have been paid subsequent to fiscal
      2004.

      The Company believes that all transactions it has entered into with its
      officers, directors and principal stockholders, except its provision of
      mitigation and restoration services to its president and chief executive
      officer as discussed above, have been on terms no less favorable to the
      Company than those available from unrelated third parties.

8.    SUBSEQUENT EVENTS - In conjunction with the Laurus transactions, the
      Company entered into a registration rights agreement, as amended, which
      obligated it, among other things, to file with the SEC a registration
      statement on Form S-1 on or before September 23, 2005 or be subject to a
      liquidated damages claim. Laurus granted the Company an extension during
      which time no liquidated damage claim was assessed, and the Company filed
      its Form S-1 on October 3, 2005, prior to the expiration of the extension.

      Subsequent to June 28, 2005 and in the wake of Hurricane Katrina, the
      Company has established offices in Louisiana and is directing considerable
      resources to generating new business opportunities in that area.

      On October 6, 2005, Laurus loaned the Company an additional $1,350,000,
      and the Company amended and restated the Laurus note to be in the
      principal amount of $7,350,000. See Note 7.

      On November 10, 2005, Laurus granted the Company a two-month deferral of
      required principal payments, pursuant to which the Company's first
      principal payment under the Laurus note has been deferred from November 1,
      2005 until January 1, 2006. On November 23, 2005, Laurus agreed to (a)
      waive the fee associated with the lack of effectiveness of the Form S-1 by
      November 22, 2005, (b) postpone the date by which the Company must have
      the Form S-1 declared effective until February 10, 2006 and (c) postpone
      the date by which the Company must increase its authorized capital from
      December 31, 2005 until January 31, 2006.


                                       15

<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

OVERVIEW

We, through our wholly-owned subsidiaries, provide a full array of emergency
response, remediation and disaster restoration services to a broad range of
clients. We have expertise in the areas of hazardous materials remediation,
microbial remediation, testing, toxicology, training, wetlands restoration,
wildlife and natural resources rehabilitation, asbestos and lead abatement,
technical advisory services, restoration and site renovation services.

Our revenues are derived primarily from providing emergency response,
remediation and disaster restoration services to new and repeat customers on
time and materials basis or pursuant to fixed-price contracts, including in
connection with sudden catastrophes, such as in connection with the services
that we are providing in the aftermath of Hurricanes Katrina and Wilma. In the
thirteen week period ended September 27, 2005 and in the prior fiscal year,
substantially all of our revenues were derived from time and materials
contracts. Under our fixed-price contracts, we assess the scope of work to be
done and contract to perform a specified scope of work for a fixed price,
subject to adjustment for work outside such scope of work, upon prior approval
by our customers. Because most of our projects consist of emergency or disaster
responses, which do not permit a definitive prior assessment of the full scope
of work entailed and require immediate attention in order to mitigate loss and
maximize recovery, most of our projects are performed on a time and materials
basis. Under our time and materials contracts, we charge our customers for
labor, equipment usage, allocated overhead and a markup relating thereto. Our
cost of revenues consists primarily of labor and labor-related costs, insurance,
benefits and insurance, travel and entertainment, repairs, maintenance,
equipment rental, materials and supplies, disposal costs and depreciation of
capital equipment. Our selling, general, and administrative expenses primarily
consist of expenses related to provisions for doubtful accounts, legal fees,
sales salaries, marketing and consulting.

We have encountered difficulty with cash collections and slow cash flow due
primarily to factors including:

      o    customers refusing to pay prior to receiving insurance
           reimbursements;

      o    customers' facility managers needing to wait for insurance adjustors
           to approve work before the remission of payment; and

      o    certain customers refusing to pay in connection with disputed change
           orders.

In an effort to enhance our cash flows from operations, beginning in our 2005
fiscal year, we began implementing improvements in our billing and invoicing
procedures as follows:

      o    we generally do not commence projects until we have a fully executed
           contract;

      o    our service contracts provide that our customers are directly
           obligated for our services;

      o    we require client approval with respect to the work performed or to
           be performed;

      o    we generally seek deposits or mobilization fees for our time and
           materials contracts;

      o    we engage local legal counsel in the areas in which we operate to
           file liens against customers' real property in the event of contract
           disputes; and

      o    all invoices submitted for payment are reviewed for proper
           documentation.

Because some of these are relatively new changes, no assurances can be given
that they will be successful in improving our collections and cash flows.
Further, approximately 5% of our current projects are performed under procedures
that predate these improvements.

In light of the foregoing, we expect to generate sufficient cash flow from
operations to support our working capital needs and to adequately fund our
current operations for at least the next twelve months. However, any further
difficulty in collecting our accounts receivable or further significant growth
could adversely affect our liquidity. In the event that we do not generate
sufficient positive cash flow from operations, we may need to seek additional
financing in addition to the financing provided by Laurus. Laurus is under no
obligation to provide any further funding to us. Currently, we have no credit
facility for additional borrowing.

On June 30, 2005, we issued to Laurus a three-year secured convertible term note
in the principal amount of $5,000,000. Subsequently, Laurus loaned us an
additional $2,350,000, and we amended and restated the note accordingly. As of
December 1, 2005, the principal amount of the Laurus note outstanding equaled
$7,350,000. On November 10, 2005, Laurus agreed to defer the principal monthly
payments due in November and December 2005 in the aggregate amount of $459,375
until June 30, 2008, the maturity date of the Laurus note, in order to
facilitate financing of our gulf coast and Florida operations.


                                       16

<PAGE>

We currently are engaged on various projects within our customary scope of
services for private sector commercial and residential customers in the gulf
coast and Florida regions. Under time and materials contracts or other
arrangements, we have billed in excess of $2.2 million of work that we have
completed in connection with these projects. We have also billed in excess of
$7.4 million for projects in these areas that are still in progress. As of
November 1, 2005 during our fiscal 2006, we have billed an aggregate of over of
$11 million of time and materials projects. Management believes that we will be
engaged to perform substantial additional projects in this region in the near
term, possibly including federally funded projects on which we have not focused
to date; however, no assurance can be given in this regard until contracts
relating to these projects have been executed.

Restatement

The accompanying financial statements have been restated to correct the
accounting in two principal areas as follows:

      o    to apply derivative accounting applicable to the Laurus financing
           entered into on June 30, 2005, which had the net effect of increasing
           our reported loss and total liabilities by $22,298,355 and
           $26,804,248, respectively, with an equivalent effect of the latter
           amount on stockholders' equity, resulting in an aggregate deficit
           therein of $21,220,510. Specifically, we have recognized embedded
           derivative liabilities, related to the convertible note as well as
           the common stock purchase options and warrants issued to Laurus. The
           recognition of these embedded derivative liabilities was required due
           to an insufficiency of authorized common shares existing as of June
           30, 2005 and continuing through September 29, 2006. See Explanatory
           Note. The largest single component of the restatement was the
           $20,999,559 mark-to-market loss during the quarter on the derivative
           liabilities, principally related to an increase in the price of our
           common stock from $0.09 to $0.33.

      o    to adopt SFAS No. 123R at the beginning of the current year, as well
           as to include in the accounting for stock-based compensation, an
           option to purchase 15,469,964 shares of common stock, with a fair
           value of $1,337,889, issued to our chief executive officer on the
           second day of the current fiscal year. The omission of this amount in
           the pro-forma disclosures previously presented was inadvertent. This
           increase in reported general and administrative expenses and net loss
           had no effect on reported assets, liabilities or equity, as the
           charge was offset by an equivalent credit to additional paid-in
           capital.

The net effect of the restatement on our financial statements was an increase in
our net loss for the quarter of $23,692,494. The effect on liabilities and
equity is totally attributable to the adoption of derivative accounting as shown
in the second preceding paragraph. For further details on these adjustments to
our financial statements, see Notes 2, 3 and 7 as well as elsewhere in this
discussion.

We identified the need for this amendment in connection with answering responses
to comment letters that we received from the SEC relating to its review of our
Registration Statement on Form S-1, which we originally filed on October 3,
2005. We withdrew such Registration Statement on July 7, 2006.

Ability to Continue as a Going Concern

Our independent auditors raised a concern in their report on our financial
statements for our 2005 fiscal year about our ability to continue as a going
concern. Due to our recurring losses from operations, working capital deficit,
stockholders' deficit and difficulty in generating sufficient cash flow to meet
our obligations and sustain our operations, there is substantial doubt about our
ability to continue as a going concern. Although we had a net profit of $53,066
for our 2005 fiscal year, the recognition of significant embedded derivative
liabilities together with the uncertainty about our ability to continue as a
going concern may limit our ability to access certain types of financing, or may
prevent us from obtaining financing on acceptable terms.

CRITICAL ACCOUNTING POLICIES

Management's discussion and analysis of our financial position and results of
operations is based upon our audited consolidated financial statements for our
fiscal year ended June 28, 2005, which have been prepared in accordance with
accounting principles generally accepted in the United States of America, and
our unaudited interim consolidated financial statements as restated for our
fiscal quarter ended September 27, 2005. The preparation of these consolidated
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. We believe that the critical accounting policies
and areas that require the most significant judgments and estimates to be used
in the preparation of our consolidated financial statements are accounting for
embedded derivative liabilities, stock based transactions, contracts, allowance
for doubtful accounts and the valuation allowance related to deferred tax
assets.


                                       17

<PAGE>

Embedded Derivative Liabilities- In order to calculate the derivative
liabilities, we have projected the following factors over various periods
through the June 30, 2008 maturity date of the note:

            o    the prime interest rate was projected to increase 0.25% per
                 quarter for the first year;

            o    the future volatility of common stock was projected at 150%;

            o    the stock price annual growth rate was estimated at the cost of
                 equity;

            o    a default on registration requirements was projected at 5.0%;

            o    other forms of default were projected at 5.0% initially,
                 increasing 0.1% monthly;

            o    the availability of alternative financing to redeem the note,
                 if exercise of redemption option was triggered, starting at 0%,
                 increasing monthly by 1% to a maximum of 25%;

            o    the twenty-two day trading volume remaining flat; and

            o    the weighted average reset price projected at $0.0899

At the end of each successive quarterly period, we must re-measure the embedded
derivative liabilities against revised projections, with the revisions therein
directly based on the actual experience. Each of the above factors contributes
differently to the actual calculations, but we believe the variations in our
stock price to be the most significant.

In addition, at such time that we achieve sufficient authorized common shares,
the existing derivative liabilities will be credited to equity at their then
measured values. We believe that, by virtue of the Omnibus Amendment entered
into with Laurus on September 29, 2006, together with the amended and restated
note issued to Laurus pursuant thereto, we achieved having sufficient authorized
shares as of that date. See Explanatory Note.

Stock Based Transactions - We consummated various transactions where we paid the
consideration primarily in options or warrants to purchase our common stock.
These transactions include financing transactions and providing incentives to
attract, retain and motivate employees, officers and directors.

When options or warrants to purchase our common stock are used as incentives for
employees, officers or directors, we now use the fair value method as required
by SFAS No.123R. The accompanying restated financial statements reflect the
adoption of this pronouncement as of the beginning of fiscal 2006, as required.
Prior to the restatement reported herein, we had continued to disclose the
pro-forma effects of adopting the predecessor standard, SFAS No. 123 that was
previously allowed. Such disclosure inadvertently excluded the 15,469,964
options that we issued to our chief executive officer on June 30, 2005.

The fair value of options or warrants to purchase our common stock is now
exclusively determined using the Black-Scholes valuation method, a method widely
accepted as providing the fair market value of an option or warrant to purchase
stock at a fixed price for a specified period of time. Black-Scholes uses five
variables to establish market value of stock options or warrants:

      o    exercise price (the price to be paid for a share in our stock);

      o    price of our stock on the day the options or warrants are granted;

      o    the expected number of days that the options or warrants will be held
           before they are exercised, based on the average of their vesting and
           contractual periods;

      o    trading volatility of our stock, based on historical prices for a
           retrospective period equal to the expected holding period together
           with certain other factors as applicable; and

      o    the annual interest rate on the day the option or warrant is granted
           for the expected holding period.

The determination of expected volatility requires management to make certain
estimates and the actual volatility may vary significantly from that estimate.
Accordingly, the determination of the resulting expense is based on a management
estimate.

Revenue Recognition- Revenue derived from services provided to customers over
periods of less than one month is recognized when billed.

Revenue from claims, such as claims related to disputed change orders, is
recognized where realization is probable and the amount can be reliably
estimated, based upon meeting the following conditions:

      o    The original contract or other evidence provides a legal basis for
           the claim;

      o    The additional costs were caused by circumstances that were
           unforeseen at the contract date and were not the result of
           deficiencies in our performance;

      o    Costs associated with the claims are identifiable; and

      o    The evidence supporting the claims is objective and verifiable.

Revenue from 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.


                                       18

<PAGE>

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 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. Revenue from claims, such as claims relating to
disputed change orders, is recognized when realization is probable and the
amount can be reliably estimated, based upon meeting the following conditions:

      o    The original contract or other evidence provides a legal basis for
           the claim;

      o    The additional costs were caused by circumstances that were
           unforeseen at the contract date and were not the result of
           deficiencies in our performance;

      o    Costs associated with the claims are identifiable; and

      o    The evidence supporting the claims is objective and verifiable.

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 - We maintain an allowance for doubtful trade
accounts receivable for estimated losses resulting from the inability of our
customers to make required payments. In determining collectibility, we review
available customer account and financial information, including public filings
and credit reports, current trends, credit policy, and accounts receivable aging
and may also consult legal counsel when appropriate. A considerable amount of
judgment is required when we assess the likelihood of our realization of
accounts receivables, including assessing the probability of collection and the
current credit worthiness of each customer. If the financial condition of our
customers were to deteriorate, resulting in an impairment of their ability to
make payments, an additional provision for doubtful accounts could be required.
When it is deemed probable that a specific customer account is uncollectible,
that balance is included in the reserve calculation. Actual results could differ
from these estimates.

Deferred Tax Asset Valuation Allowance - We record a valuation allowance to
reduce our deferred tax assets to the amount that is more likely than not to be
realized. Due to our history of losses, we have recorded a full valuation
allowance against our net deferred tax assets as of June 28, 2005 and September
27, 2005. We currently provide for income taxes only to the extent that we
expect to pay cash taxes on current income. When we are profitable at levels
which cause management to conclude that it is more likely than not that we will
realize all or a portion of our deferred tax assets, we record the estimated net
realizable value of our deferred tax assets at that time and provide for income
taxes at our combined federal and state effective rates.

RESULTS OF OPERATIONS

Thirteen weeks ended September 27, 2005 and September 28, 2004

Revenue

Total revenues for the thirteen weeks ended September 27, 2005 decreased by
$314,167, or 5.7%, to $5,164,339 from $5,478,506 for the thirteen weeks ended
September 28, 2004. This decrease in revenue was primarily attributable to a
decrease of $931,003 in our emergency, disaster response and remediation work
(associated primarily with hurricanes in Florida in the fiscal 2004 period) and
a $481,321 decrease in our spill and soil environmental remediation. These
decreases were partially offset by a $762,806 increase in our asbestos, lead and
mold work, and a $302,745 increase in restoration work.

Our revenues in the thirteen weeks ended September 27, 2005 reflect revenues of
approximately $456,000 generated from work relating to hurricanes Katrina and
Wilma, the revenues which we expect to increase in later periods.

Cost of Revenues

Cost of revenues increased $23,147 or 0.5%, to $4,385,270 for the thirteen weeks
ended September 27, 2005 as compared to $4,362,123 for the thirteen weeks ended
September 28, 2004. This increase was primarily attributable to increases of
$808,084 in payroll, including fringe benefits, $103,559 for travel and
travel-related expenses associated with the mobilization to Louisiana to begin
the cleanup of the damage caused by Hurricane Katrina and $42,577 in leasing
expenses attributed to the rental of three premises, which together serve as a
satellite office, regional command center, training center and housing for our
employees sent to the Gulf Coast, partially offset by the favorable effect of
not recording as a cost of revenue costs in excess of billings of $492,683
relating to Hurricane Katrina work that had not yet been billed, in addition to
a decrease of approximately $396,000 in direct job-related costs relating to
subcontractor expenses, materials, supplies, equipment rental, and waste
disposal costs. Our cost of revenues consists primarily of labor and
labor-related costs, payroll taxes, benefits, training, job-related insurance
costs, travel and entertainment costs, repairs, maintenance and rental of job
equipment, materials and supplies, testing and sampling, transportation,
disposal, and depreciation of capital equipment.


                                       19

<PAGE>

Gross Profit

Gross profit decreased by $337,314, or 30.2%, to $779,069, or 15%, of total
revenues for the thirteen weeks ended September 27, 2005 as compared to
$1,116,383, or 20%, of total revenues for the thirteen weeks ended September 28,
2004. This decrease in gross profit was due primarily to the factors described
above in relation to the decrease in our revenue and increase in our cost of
revenues.

Selling, General and Administrative Expenses (Restated)

Selling, general and administrative expenses increased by $1,668,509, or 135.4%,
to $2,900,543 for the thirteen weeks ended September 27, 2005 from $1,232,034
for the corresponding period in 2004 and constituted approximately 56.2% and
22.5% of revenues in such periods, respectively. This increase was almost
entirely due to the adoption of SFAS No. 123R, and the related inclusion in
operating expenses of $1,394,139, the fair value of options vesting during the
quarter. All but $56,250 of this unusually large amount of option expense arose
from the employment-related option to purchase 15,469,964 shares granted to our
chief executive officer, which grant was a required condition of the Laurus
financing. Other changes in this account classification were an increase of
$50,000 to our bad debt reserve, an increase in insurance costs of $26,001,
increased accounting and legal fees of $206,398 and a $25,000 increase in
marketing expenses. These were partially offset by a decrease of $117,483 in
consulting fees that were expended in the fiscal 2004 period. Our selling,
general, and administrative expenses primarily consist of expenses related to
provisions for doubtful accounts, legal fees, sales salaries, stock-based
compensation (commencing with this fiscal year) marketing and consulting.

Mark-to-Market Loss on Embedded Derivative Liabilities

Application of derivative accounting in the current period resulted in a
mark-to-market loss on the embedded derivative liabilities aggregating
$20,999,559, principally driven by an increase in our stock price from $0.09 to
$0.33. At the end of the period, such derivative liabilities totaled
$26,985,731. These liabilities must be marked to market at the end of each
quarter, based on facts and assumptions then applicable. Subsequent decreases or
increases in our stock price and changes in other factors will have
corresponding effects on our results of operations and reported liabilities. We
had no derivative liabilities in the 2005 fiscal quarter. See Liquidity and
Capital Resources.

Interest Expense (Restated)

Interest expense (restated) increased by $1,347,522, or 2065%, to $1,412,780 for
the thirteen weeks ended September 27, 2005 from $65,258 for the thirteen weeks
ended September 28, 2004. Substantially all of the increase was due to the
Laurus financing and the application of derivative accounting. The significant
components of the increase were interest expense recorded on the Laurus note and
the related derivative liabilities of $692,951, amortization of the note
discount of $291,252, and the amortization of deferred financing costs relating
to the Laurus transaction of $246,595. These increases were offset by reductions
in interest incurred on obligations due to Spotless.

Purchase discounts and financing fees paid to a related party decreased from
$145,846 to zero, due to the termination of the accounts receivable financing
agreement with Spotless.

Loss on Exercise of Options

After recognition of an embedded derivative liability related to the options
exercisable by Laurus at $0.0001, we are also required to recognize gain or loss
on the extinguishment of the related liability when options are exercised.
During the quarter ended September 27, 2005, Laurus exercised a portion of its
option and purchased 1,500,000 shares at $0.0001 per share, when the market
value of the Company's common stock was $0.39 per share. This exercise reduced
the derivative liability related to the option by $135,000 (the $0.09 fair value
of the stock at the date the options were issued) and also resulted in a loss on
the exercise in the amount of $449,850 or $0.2999 per share (the difference
between the fair value at the date of exercise and issuance ($0.39 and $0.09,
respectively)) less the $0.0001 per share exercise price.


                                       20

<PAGE>

As a result of applying derivative accounting, we recognized a total increase in
other expenses of $22,298,355.

Benefit Related to Variable Accounting Treatment for Officer Options

Under the terms of a previous employment agreement we entered into and a
separate agreement with Spotless, our president and chief executive officer was
able to sell to us, or in certain circumstances to Spotless, all shares of our
common stock held by him and all shares of our common stock underlying vested
options to purchase shares of our common stock held by him upon the occurrence
of certain events. Due to the terms of the options, changes in the market price
of our common stock, in either direction, resulted in a corresponding expense or
benefit. There was no benefit or expense required to be recorded in the thirteen
weeks ended September 27, 2005 due to the elimination of this risk on June 30,
2005. There was no benefit or expense required to be recorded in the thirteen
weeks ended September 28, 2004 due to the low market price of our common stock.

Provision for Income Taxes

The provision for income taxes for the thirteen weeks ended September 27, 2005
was $8,218 as compared to $2,589 for the thirteen weeks ended September 28,
2004. This increase was the result of higher taxable income in certain
jurisdictions for the thirteen weeks ended September 27, 2005, primarily
attributable to income recognized due to the cancellation of our secured debt
owed to Spotless, our former majority stockholder and senior secured lender. We
have a tax liability of $686,893 in connection with the cancellation of this
secured debt, which has been credited to additional paid-in capital.

Net Loss (Restated)

Our previously reported net loss increased by $23,692,494, comprised of the
derivative accounting related effects noted above as well as stock-based
compensation expense of $1,394,139 recorded upon adoption of SFAS No.123R. As
restated, our net loss for the 2006 quarter was $25,013,935 as compared to the
2005 quarter net loss of $328,545. Loss attributable to common stockholders was
increased in each quarter by preferred stock dividends of $19,500. Loss per
share in the current quarter increased from $0.04 to $0.76 due to the
restatement compared to $0.00 per share for the prior year.

Liquidity and Capital Resources

As of September 27, 2005, we had a cash balance of $147,493, a working capital
deficit of $25,677,343 (including derivative liabilities of $26,985,731) and a
stockholders' deficit of $21,220,510. Although the derivative liabilities are
reported as current, we reasonably expect that we will not have to expend our
working capital to pay them. [ We believe that by virtue of the Omnibus
Amendment, dated September 29, 2006, entered into between Laurus and us, as well
as the amended and restated secured convertible term note issued to Laurus
pursuant thereto, the derivative liabilities will be credited to equity. See
Explanatory Note]. As of June 28, 2005, we had a cash balance of $512,711, a
working capital deficit of $1,704,091 and an equity deficit of $712,889. We
incurred a net loss of $25,013,935 for our fiscal quarter ended September 27,
2005.

Accounts receivable, net of allowance for doubtful accounts at September 27,
2005 and June 28, 2005 were $8,210,155 and $6,755,338, respectively, of. For
these periods, approximately $2,711,000 and $1,976,000, respectively, of these
amounts were disputed claims subject to collection litigation, primarily related
to disputes over changed work orders or other modifications of our work. We do
not believe that the disputed receivables had a material effect on liquidity for
the periods presented.

Net cash used in operating activities was $567,253 for the thirteen weeks ended
September 27, 2005, as compared to net cash provided by operations of $287,432
for the thirteen weeks ended September 28, 2004. Accounts receivable increased
by $1,465,620, or 17.7%, as of September 27, 2005 to $8,210,155, from $6,755,338
as of September 28, 2004, primarily as a result of hurricane-related work billed
toward the end of the 2005 period and difficulties with cash collections.
Accounts receivable decreased by $444,658, or 5.6%, as of September 28, 2004 to
$7,492,789, from $7,937,447 as of September 30, 2003, primarily as a result of
decreased sales and aggregate sales of accounts receivable to Spotless in the
amount of $972,000 during the thirteen weeks ended September 28, 2004. Accounts
payable and accrued expenses increased by $1,333,348, or 37.4%, as of September
27, 2005 to $4,895,314, from $3,561,966 as of September 28, 2004, primarily as a
result of the costs associated with our mobilization efforts in Louisiana and an
increase of $528,000 in insurance premiums.

Net cash provided by financing activities for the thirteen weeks ended September
27, 2005 was $1,087,517, as compared to cash used by financing activities of
$90,531 for the thirteen weeks ended September 28, 2004, primarily as a direct
result of $6,000,000 received in connection with our debt restructuring with
Laurus, which was used to pay related transaction and other expenses in the
amount of $2,594,339 and repayment of indebtedness to Spotless in the amount of
$2,750,000. These transactions resulted in a net increase of $1,500,000 in
borrowings and the cancellation of $1,190,837 of our previous secured note
payable to Spotless. The balance of the proceeds in the amount of $755,661 was
used to fund working capital and our initial Hurricane Katrina mobilization
costs. Financing activities for the thirteen weeks ended September 28, 2004 used
net cash of $90,531 as a result of long-term debt repayment.


                                       21

<PAGE>

Cash used for capital expenditures increased to $885,482, or 1,480.9%, during
the thirteen weeks ended September 27, 2005, as compared to $56,011 for the
thirteen weeks ended September 28, 2004, due to the purchase of capital
equipment, including 10 trucks, 5 campers, 1 trailer, 1 life raft, blowers,
dehumidifiers and other assets to be utilized in the clean-up efforts relating
to Hurricane Katrina. At this time, we do not have any other material
commitments or plans for capital expenditures. We intend, however, to make
additional capital expenditures, to the extent our financial condition permits,
as may be required in connection with rendering our services in the future.

Historically, we have financed our operations primarily through issuance of debt
and equity securities, through short-term borrowings from our former majority
shareholder, and through cash generated from operations. We expect to generate
sufficient cash flow from operations to support our working capital needs and to
adequately fund our current operations for at least the next twelve months.
However, any further difficulty in collecting our accounts receivable or further
significant growth could adversely affect our liquidity. In the event that we do
not generate sufficient positive cash flow from operations, or if we experience
changes in our plans or other events that adversely affect our operations or
cash flow, we may need to seek additional financing in addition to the financing
provided by Laurus. Laurus is under no obligation to provide any further funding
to us. Currently, we have no credit facility for additional borrowing.

Our future cash requirements are expected to depend on numerous factors,
including, but not limited to our ability to:

      o    Obtain profitable environmental or related construction contracts. So
           long as we have sufficient working capital, we anticipate continued
           revenue growth in new and existing service areas and to continue to
           bid on large projects, though there can be no assurance that any of
           our bids will be accepted or that we will have sufficient working
           capital. We currently are engaged on various projects within our
           customary scope of services for private sector commercial and
           residential customers in the gulf coast and Florida regions in
           connection with the aftermath of Hurricanes Katrina and Wilma. Under
           time and materials contracts or other arrangements, we have billed in
           excess of $2.2 million of work that we have completed in connection
           with these projects. We have also billed in excess of $7.4 million
           for projects in these areas that are still in progress. As of
           November 1, 2005 during our fiscal 2006, we have billed an aggregate
           of over $11 million of time and materials projects. In this
           connection, we also intend to focus on procuring time and materials
           contracts, which have historically generated higher gross margins. We
           also intend to continue our marketing campaign, including radio and
           newspaper advertising and a public relations program, to inform
           residents of New Orleans and the surrounding gulf areas about our
           services. Our management believes that we will be engaged to perform
           substantial additional projects in this region for the foreseeable
           future, possibly including federally funded projects on which we have
           not focused to date; however, no assurance can be given in this
           regard until contracts relating to these projects have been executed.

      o    Control our selling, general and administrative expenses, which have
           recently increased in connection with our need to incur labor,
           operating and equipment expenses in relation to our operations in the
           gulf coast and Florida regions. In order to control our selling,
           general and administrative expenses, we have or are in the process of
           optimizing the efficiency of our support staff through training and
           enhanced task allocation while reducing unneeded resources and
           reviewing non-project related expenses in an effort to reduce costs
           where appropriate while preserving the quality of our service.

      o    Raise additional capital or obtain additional financing. Management
           has preliminarily explored additional funding sources, but has been
           unable to attract additional debt or equity capital. Laurus indicated
           to us that it did not intend to provide any additional financing at
           the time that it loaned an additional $1,350,000 to us in October
           2005. In addition, the existence of the Laurus and Spotless security
           interests may impair our ability to raise additional debt capital. No
           assurance can be given that we will be able to obtain additional debt
           or equity capital, although our management expects to continue
           seeking any such favorable opportunities.

      o    Generate positive cash flow from operations. We seek to obtain
           profitable contracts that generate gross profits more than sufficient
           to pay our expenses. Our plans for our 2006 fiscal year include
           concentrating our efforts in the gulf coast and Florida regions in
           connection with the aftermath of Hurricanes Katrina and Wilma and
           addressing our difficulty with cash collections and slow cash flow.


                                       22

<PAGE>

We have experienced difficulties with cash collections and slow cash flow due
primarily to factors including:

      o    customers refusing to pay prior to receiving insurance
           reimbursements;

      o    customers' facility managers needing to wait for insurance adjustors
           to approve work before the remission of payment; and

      o    certain customers refusing to pay in connection with disputed change
           orders.

In an effort to enhance our cash flows from operations, beginning in our 2005
fiscal year, we began implementing improvements in our billing and invoicing
procedures as follows:

      o    we generally do not commence projects until we have a fully executed
           contract;

      o    our service contracts provide that our customers are directly
           obligated for our services;

      o    we require client approval with respect to the work performed or to
           be performed;

      o    we generally seek deposits or mobilization fees for time and
           materials contracts;

      o    we engage local legal counsel in the areas in which we operate to
           file liens against customers' real property in the event of contract
           disputes; and

      o    all invoices submitted for payment are reviewed for proper
           documentation.

Due to the nature of our business, which includes responding to emergency
situations on a 24 hours/7 days a week basis, we, on occasion, will commence an
emergency project prior to obtaining a formal contract. In these situations, we
may commence emergency services upon the oral authorization of the property
owners or their agents or government workers (e.g. police or Coast Guard). In
these isolated instances, we do not incur significant expense and require an
executed contract within 48 hours of commencement of work.

Because some of these are relatively new changes, no assurances can be given
that they will be successful in improving our collections and cash flows.
Further, approximately 5% of our current projects are performed under procedures
that predate these improvements.

On June 30, 2005, we issued to Laurus a three-year secured convertible term note
in the principal amount of $5,000,000. Subsequently, Laurus loaned us an
additional $2,350,000, and we amended and restated the note accordingly. As of
December 1, 2005, the principal amount of the Note outstanding equaled
$7,350,000. On November 10, 2005, Laurus agreed to defer the principal monthly
payments due in November and December 2005 in the aggregate amount of $459,375
until June 30, 2008, the maturity date of the Note. Laurus holds a senior
security interest in our and our subsidiaries' assets collateralizing the Note,
including a pledge of the stock of our subsidiaries. In addition, Spotless holds
a subordinated security interest collateralizing our $500,000 note issued to
Spotless, which bears interest at a rate of LIBOR plus 1% per annum and is
required to be repaid at a rate of $50,000 per month commencing July 1, 2007.
The existence of these security interests may impair our ability to raise
additional debt capital.

Under the terms of the Note, which matures on June 30, 2008, we are required to
make monthly repayments of principal, on the first of each month, to Laurus in
the amount of $229,687.50, commencing as of January 1, 2006. Principal
repayments were due to commence starting November 1, 2005 but, in November 2005,
Laurus agreed to defer the initial repayment date until January 1, 2006. The
principal monthly payments due November 1, 2005 and December 1, 2005 in the
aggregate amount of $459,375 have been deferred until June 30, 2008. Interest is
payable monthly and started to accrue on August 1, 2005. All required interest
payments as of the date of this report have been made. We are required to pay
such amounts in shares of our common stock should all of the following
conditions be satisfied:

      o    the average closing price of our common stock for the five (5)
           trading days immediately preceding each first of the month is equal
           to or greater than $.10;

      o    the amount of the payment then due is not an amount greater than
           thirty percent (30%) of the aggregate dollar trading volume of the
           common stock for the period of twenty-two (22) trading days
           immediately prior to the first of each month;

      o    the common stock underlying the note and warrant issued to Laurus has
           been registered under an effective registration statement under the
           Securities Act of 1933 or is otherwise covered by an exemption from
           registration for resale pursuant to Rule 144 of the Securities Act of
           1933;

      o    Laurus' aggregate beneficial ownership of our shares of common stock
           does not and would not by virtue thereof exceed 4.99%; and

      o    we are not in default of the note.

If any of these conditions are not satisfied, we will be required to make
payments in cash in an amount equal to 103% of the principal amount, plus
accrued interest, then due. Should we be required to pay cash, this may have an
adverse effect on our cash flow and liquidity.


                                       23

<PAGE>

The Laurus note may be redeemed by us in cash by paying the holder of the note
120% of the principal amount, plus accrued interest. As discussed below, the
holder of the note may convert all or a portion of the note, together with
related interest and fees, into fully paid shares of our common stock at any
time. The number of shares to be issued shall equal the total amount of the note
to be converted, divided by an initial fixed conversion price of $.09.

The conversion price of the note may be adjusted pursuant to customary
anti-dilution provisions, such as if we pay a stock dividend, reclassify our
capital stock or subdivide or combine our outstanding shares of common stock
into a greater or lesser number of shares.

We may receive proceeds from the exercise of the option and the warrant
described above if Laurus elects to pay the exercise price in cash rather than
executing a cashless exercise. Laurus may effect a cashless exercise of the
warrant if the market price of our common stock exceeds the per share exercise
price, and it may effect a cashless exercise of the option if (a) the market
price of our common stock exceeds the per share exercise price and (b) (1) we
have not registered the shares underlying the option pursuant to an effective
registration statement or (2) an event of default under the note has occurred
and is continuing. Upon a cashless exercise, in lieu of paying the exercise
price in cash, Laurus would receive shares of our common stock with a value
equal to the difference between the market price per share of our common stock
at the time of exercise and the exercise price per share set forth in the option
and the warrant, multiplied by the number of shares with respect to which the
option or warrant is exercised. There would be no proceeds payable to us upon a
cashless exercise of the option or the warrant. There can be no assurances that
Laurus will exercise the option and warrant or that it will elect to pay the
exercise price in cash in lieu of a cashless exercise. On September 12, 2005, we
issued 1,500,000 shares of our common stock to Laurus in connection with its
partial exercise of the option at an exercise price of $.0001 per share for an
aggregate exercise price of $150.

Laurus has contractually agreed to restrict its ability to convert the note
and/or exercise its warrant and option if such conversion and/or exercise would
cause its beneficial ownership of shares of our common stock to exceed 4.99% of
the outstanding shares of our common stock. The 4.99% limitation is null and
void without notice to us upon the occurrence and during the continuance of an
event of default or upon 75 days' prior written notice to us. As of September
27, 2005, Laurus beneficially owns 1,500,000 shares of our common stock, or
approximately 4.47% of our outstanding common stock. As a result, Laurus could
only acquire up to approximately 184,405 additional shares, which would
constitute a conversion of approximately $16,596 of the principal amount of the
note, while remaining in compliance with the 4.99% limitation. Because Laurus is
irrevocably prohibited from waiving this 4.99% limitation, except as described
above, even if the other conditions allowing us to pay in shares of common stock
have been satisfied, if Laurus cannot or does not reduce its ownership of our
common stock at a time when such reduction would be necessary to allow us to
make a payment in shares of common stock, we would be required to pay Laurus in
cash. This may have an adverse effect on our cash flow and liquidity.

In the event we default on the note, we will be required to pay 120% of the
outstanding principal amount of the note, plus accrued but unpaid interest. Upon
the occurrence of an event of default, the interest rate charged will be
increased by 2% per month until the default is cured. The note is secured by a
lien on substantially all of our assets, including the stock of our
subsidiaries, all cash, cash equivalents, accounts receivable, deposit accounts,
inventory, equipment, goods, fixtures, documents, instruments, including
promissory notes, contract rights and general intangibles, including payment
intangibles. The Master Security Agreement, dated June 30, 2005, between us and
Laurus contains no specific financial covenants. The Master Security Agreement
and the note define the circumstances under which they can be declared in
default and subject to termination, including:

      o    a failure to pay interest and principal payments under the note when
           due on the first day of the month or prior to the expiration of the
           three-business day grace period, unless agreed otherwise;

      o    a breach by us of any material covenant or term or condition of the
           note or in any agreement made in connection therewith and, to the
           extent subject to cure, the continuation of such breach without
           remedy for a period of fifteen or thirty days, as the case may be;

      o    a breach by us of any material representation or warranty made in the
           note or in any agreement made in connection therewith;

      o    any form of bankruptcy or insolvency proceeding instituted by or
           against us, which is not vacated within 30 days;

      o    any attachment or lien in excess of $75,000 in the aggregate made
           upon our assets or a judgment rendered against our property involving
           a liability of more than $75,000 which shall remain un-vacated,
           un-bonded or un-stayed for a period of 30 days;

      o    a failure to timely deliver shares of common stock when due upon
           conversion of the note or a failure to timely deliver a replacement
           note;

      o    an SEC stop trade order or principal market trading suspension of our
           common stock is in effect for 5 consecutive trading days or 5 days
           during a period of 10 consecutive trading days, if we are not able to
           cure such trading suspension within 30 days of receiving notice or
           are not able to list our common stock on another principal market
           within 60 days of such notice;


                                       24
<PAGE>

      o     a failure to have authorized and reserved shares of our common stock
            for issuance on or before January 31, 2006 (subject to extensions
            granted by Laurus) sufficient to provide for the full conversion of
            the Note, and full exercise of the option and warrant issued by us
            to Laurus;

      o     an indictment or threatened indictment of us or any of our executive
            officers under any criminal statute or commencement or threatened
            commencement of criminal or civil proceedings against us or any of
            our executive officers pursuant to which statutory or proceeding
            penalties or remedies available include forfeiture of any of our
            property; and

      o     the departure of Michael O'Reilly from our senior management.

Pursuant to the terms of a Registration Rights Agreement, dated June 30, 2005
and as amended, we were obligated to file a registration statement with the SEC
registering the resale of shares of our common stock issuable upon a conversion
of the Note and upon the exercise of the option and warrant issued to Laurus. If
the registration statement is not declared effective by February 10, 2006
(subject to extensions granted by Laurus) by the SEC, then we will be required
to pay to Laurus the following amounts:

      o     1.5% of the principal outstanding on the note, for the first thirty
            days, prorated for partial periods, which equals $3,675 per day
            based upon the $7,350,000 principal amount of the note currently
            outstanding; and

      o     2.0% of the principal outstanding on the note, for each thirty day
            period, prorated for partial periods, which equals $4,900 per day.

The proceeds we received in connection with the financing transaction and
subsequent borrowings from Laurus were used to pay the amounts set forth below
to the persons or for the purposes set forth below:

      Spotless Debt
      o     Former majority stockholder and senior secured lender
            (Spotless), consisting of approximately $2,650,000 in
            settlement of the principal and $100,000 in interest      $2,750,000
                                                                      ----------
      Transaction Expenses
      o     Laurus transaction fee                                     1,750,000
      o     Laurus Capital Management, LLC management and due
            diligence fees                                               262,900
      o     Loeb & Loeb escrow fee                                         2,000
      o     Insurance premiums                                            37,500
      o     Legal fees                                                   146,773
      o     Special committee and advisor fees                            61,136
      o     Payments to series A preferred stockholders                   35,000
                                                                      ----------
            Sub-total                                                 $2,295,309
                                                                      ----------
      Other Payments
      o     Audit fees                                                $   50,000
      o     Insurance premiums                                           276,711
      o     Initial Hurricane Katrina mobilization costs                 238,173
      o     Working capital                                            1,739,807
                                                                      ----------
            Sub-total                                                 $2,304,691
                                                                      ----------
      Total                                                           $7,350,000
                                                                      ----------

The table below summarizes contractual obligations and commitments as of October
6, 2005, including principal and interest payments on our debt1 :

<TABLE>
<CAPTION>
                                    Total         1 Year     2-3 Years   4-5 Years   Thereafter
                                 -----------   ----------   ----------   ---------   ----------
<S>                              <C>           <C>          <C>           <C>           <C>
Operating Leases                 $ 1,210,128   $  948,410   $  261,718    $    --       $--
Capitalized Leases                   477,733      208,180      240,421     29,132        --
Laurus Note Principal              7,350,000    1,518,011    5,831,989         --        --
Laurus Note
Interest Expense - Cash            1,039,086      576,158      462,928         --        --
Spotless Note Principal              500,000           --      500,000         --        --
Spotless Note Interest Expense        13,828           --       13,828         --        --
Total                            $10,590,775   $3,250,759   $7,310,884    $29,132       $--
</TABLE>

----------
(1)   This table reflects the effectiveness of Laurus' agreement to defer the
      initial monthly amortization repayment in the amount of $229,687.50 from
      November 1, 2005 until January 1, 2006.


                                       25

<PAGE>

      These amounts are based on assumed interest payments reflecting:

      o     the Laurus note at a rate of 8.75% per annum;

      o     the Spotless note at a rate of 5.86% per annum; and

      o     an aggregate of $477,733 of other long-term debt with maturities
            ranging from 3 months to 54 months for financed trucks and vehicles
            with interest rates ranging from 3.95% to 13.99%.

Off-Balance Sheet Arrangements

Although we do not have any financing arrangements that have not been recorded
in our financial statements, our transaction with Laurus resulted in a
significant discount that reduced the carrying value on our balance sheet of our
debt obligation to Laurus. As of September 27, 2005, the Note had a principal
balance of $6,000,000 with a corresponding discount of $5,136,959, resulting in
a carrying amount of $863,041 on our balance sheet. As a consequence of applying
derivative accounting, the entire note is reported as a current liability.

Effect of Inflation

Although inflation did not have a material impact on our operations during
fiscal years ended June 28, 2005, June 29, 2004 and July 1, 2003, we did
experience an increase of 11.9% in fuel costs during the first quarter of this
year due to increased oil prices, including the effect of Hurricane Katrina on
fuel prices.

Seasonality

Since we and our subsidiaries are able to perform most of our services
throughout the year, our business is not considered seasonal in nature. However,
we are affected by:

      o     the timing of large projects in certain of our service areas, i.e.,
            asbestos and mold abatement and construction;

      o     the timing of catastrophes; and

      o     inclement weather conditions. In particular, extended periods of
            rain, cold weather or other inclement weather conditions may result
            in delays in commencing or completing projects, in whole or in part.
            Any such delays may adversely affect our operations and financial
            results and may adversely affect the performance of other projects
            due to scheduling and staffing conflicts

                           FORWARD-LOOKING STATEMENTS

Statements contained in this Form 10-Q include "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended, that are based on the beliefs and
current expectations of and assumptions made by our management. Forward-looking
statements may be identified by the use of forward-looking terminology such as
"may," "expect," "believe," "estimate," "anticipate," "continue" or similar
terms, variations of those terms or the negative of those terms. 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 our best
estimates of future results, performance or achievement, based upon current
conditions and the most recent results of operations. Actual results could
differ materially from any expectation, estimate or projection conveyed by these
statements and there can be no assurance that any such expectation, estimate or
projection will be met. Numerous important factors, risks and uncertainties
affect our operating results and could cause actual results to differ from the
results implied by these or any other forward looking statements. These
potential factors, risks and uncertainties include, among other things, such
factors as:


                                       26

<PAGE>

            o     fluctuations in our stock price and the related effect on
                  mark-to-market derivative accounting

            o     the market acceptance and amount of sales of our services;

            o     our 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 we
                  provide;

            o     our ability to service our debt and other financial
                  obligations, particularly if required to pay in cash;

            o     the extent of the enactment, enforcement and strict
                  interpretations of laws relating to environmental remediation;

            o     our ability to obtain and manage new and large projects;

            o     the competitive environment within the industries in which we
                  operate;

            o     our ability to raise or access capital;

            o     our ability to continue as a going concern;

            o     our ability to effectively implement and maintain internal
                  controls and procedures;

            o     our dependence on key personnel;

            o     our ability to timely collect our accounts receivable;

            o     our 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
                  our report on Form 10-K for the fiscal year ended June 28,
                  2005.

You 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.

Except as may be required, we undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.

The foregoing discussion and analysis provides information which management
believes is relevant to an assessment and understanding of our 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 and with the consolidated financial statements included in
our annual report on Form 10-K for the period ended June 28, 2005.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Equity Price Risk - Our primary market risk exposure relates to the shares of
common stock issuable upon conversion of the Laurus note, which we originally
issued to Laurus in June 2005 as well as shares issuable upon exercise of the
related option and warrant (30,395,179 and 13,750,000 shares, respectively). On
September 12, 2005, we issued 1,500,000 shares of our common stock to Laurus in
connection with its partial exercise of its option. We have restated our
financial statements as reported herein to recognize the fair values of the
embedded derivative liabilities in the securities issued to Laurus. The fair
values of these embedded derivatives are then re-measured at the end of every
quarter. While the measurement of these embedded derivatives is most affected by
changes in our stock price (as well as the volatility thereof), they are also
affected by changes in the prime interest rate and to a lesser extent by other
(non-market) risk factors. The volatility of the mark-to-market gains and
losses, such as those reported in the accompanying restated financial
statements, although deemed to be non-operating, could have an adverse effect on
our stock price in the future. However, the mark-to-market accounting is not
expected to have any direct effect on our cash flows; the scheduled maturities
are set forth in the table of our future commitments presented above. However,
the Laurus note indirectly exposes us to risks relating to our own common stock
because if Laurus is unable to convert the loan into common stock due to low
prices or low trading volumes in the market, we then must repay the loan in cash
at a 3% premium. (See Explanatory Note, Restatement, Management's Discussion and
Analysis as well as Notes 2 and 7 to the consolidated financial statements).


                                       27

<PAGE>

Interest Rate Sensitivity - Interest rate risk is the risk that interest rates
on our debt are fully dependent upon the volatility of these rates. We do not
use derivative financial instruments to manage interest rate risk. The Laurus
note bears interest at the prime rate as published in the Wall St. Journal plus
2% (but not to less than 7.25%), decreasing by 2% (but not to less than 0%) for
every 25% increase in the Market Price (as defined therein) of our common stock
above the fixed conversion price of $.09 following the effective date of the
registration statement covering the common stock issuable upon conversion.
Should the price of our common stock maintain a price equal to 125% of $.09 for
a twelve month period and if our registration statement registering the shares
of our common stock underlying the note and the warrant issued to Laurus has
been declared effective by the SEC, we would benefit from a reduced interest
rate of 2% on the outstanding principal amount for that twelve-month period. On
June 30, 2005, we also issued a variable interest rate secured promissory note
in the principal amount of $500,000 to Spotless Plastics (USA), Inc., bearing
interest at LIBOR plus 1%. We also have various other debt with maturities
ranging from 3 months to 54 months aggregating to $477,733 for financed trucks
and vehicles. A hypothetical 1% increase in the interest rate applicable to the
outstanding amounts of the Laurus and Spotless notes along with the various
other debt for financed trucks and vehicles would increase our interest expense
by approximately $70,000 annually. This hypothetical calculation reflects the
assumed interest payments for the:

      o     Note at a rate of 8.75% per annum;

      o     Spotless note at a rate of 5.86% per annum; and

      o     various other debt for financed trucks and vehicles with maturities
            ranging from 3 months to 54 months with interest rates ranging from
            3.95% to 13.99%.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to management, including our chief executive officer and chief
financial officer, to allow timely decisions regarding required disclosure. As
required by Rule 13a-15(b) of the Securities Exchange Act of 1934, an evaluation
was performed under the supervision and with the participation of our chief
executive officer and the chief financial officer of the effectiveness of the
design and operation of our "disclosure controls and procedures" (as defined
under Rule 13a-15(e) and Rule 15d-15(e)) as of the end of the period covered by
this quarterly report on Form 10-Q filed with the SEC. Based upon that
evaluation and in connection with their determination that the matters described
immediately below relating to changes to our internal control over financial
reporting were not material, our chief executive officer and our chief financial
officer concluded that our disclosure controls and procedures, as of September
27, 2005, were effective in timely alerting them to material company information
required to be included in our periodic filings with the SEC.

Our chief executive officer and our chief financial officer reviewed with
members of our audit committee whether our need to restate our financial results
for our fiscal quarter ended September 27, 2005 affected their conclusions that
our disclosure controls and procedures, as of September 27, 2005, were effective
in timely alerting them to material company information required to be included
in our periodic filings with the SEC. In connection with their review, our chief
executive officer and chief financial officer noted that our decision to restate
our financial results did not call into question whether the relevant
information was recorded, processed, summarized or reported within the time
periods specified in the SEC's rules and forms. It also did not involve any
issue about whether information required to be disclosed in the Form 10-Q we
filed under the Securities Exchange Act was accumulated and communicated to our
chief executive officer and chief financial officer, as appropriate to allow
timely decisions regarding required disclosure. Rather, the restatements
resulted from reconsideration in connection with preparing responses to a
comment letter that we received from the SEC in relation to its review of our
registration statement on Form S-1 filed on October 3, 2005 of a decision made
by management to record in equity the common stock purchase option and warrant
issued to Laurus in connection with the Laurus financing. After extended
correspondence with the SEC and further analysis, management determined that
derivative accounting applied to these instruments and the convertible note as
they contained embedded derivative liabilities. (See Notes 2 and 7 to the
consolidated financial statements). Our chief executive officer and chief
financial officer did not find that management's subsequent decision to restate
for the derivative accounting called into question whether our disclosure
controls and procedures were effective to ensure that required information was
disclosed to them as appropriate to allow timely decisions regarding required
disclosure. Therefore, based on that review, our chief executive officer and our
chief financial officer determined that their prior conclusions, that our
disclosure controls and procedures were effective as of September 27, 2005, had
not changed.

Our chief executive officer and our chief financial officer reached a similar
conclusion with respect to our restatement of stock-based compensation expense.
As noted in this report, we did not previously adopt SFAS No.123R in the first
quarter as required, and we excluded from the previous pro-forma disclosure the
cost related to the employment-related options issued to our chief executive
officer. Our chief executive officer and our chief financial officer view this
as an inadvertent omission, but do not attribute it to non-effective disclosure
controls and procedures, particularly since the issuance of the options was
disclosed. Rather, it is viewed as a one-time error, and highly unusual in that
it was overlooked by all of the parties associated with the Company's financial
reporting during this period. The Company believes the error was partly due to
the issuance of the options being in the first few days of the fiscal period for
which SFAS No.123R became effective (based on the Company's fiscal year-end) as
well as the focus of the Company and its accounting professionals on answering
the comments received from the SEC staff.


                                       28

<PAGE>

Changes in internal control over financial reporting

There were no changes in the quarter ended September 27, 2005 that materially
effected, or are reasonably likely to materially effect, our internal control
over financial reporting.

In connection with our first quarter fiscal 2006 review, we identified issues
arising in connection with a change in our accounting staff during such period
regarding the timing and related processing of cash receipts and allocation of
costs associated with our contract and billing procedures and have or are in the
process of implementing the following measures:

      o     We have modified our calendar quarterly period end dates in our
            computer system to correspond with our actual quarterly period
            ending dates in order to enhance the accurate and timely processing
            of our cash receipts for each quarterly report. We have also
            emphasized to our accounting staff that they need to record
            transactions on the dates that they occur instead of batching such
            transactions for processing at the end of one of our monthly,
            quarterly or annual periods.

      o     We are in the process of modifying the way in which we allocate our
            costs to specific projects in an effort to more precisely record our
            project costs.

We are assigning a high priority to the short-term and long-term correction of
our internal controls over financial reporting and will continue to evaluate the
effectiveness of such internal controls on an on-going basis and will take
further action as might be appropriate.


                                       29

<PAGE>

                           PART 2 - OTHER INFORMATION

Item 1. Legal Proceedings

On April 16, 2002, Richard S. Fischbein and Mimi Fischbein commenced an action
against us and Michael O'Reilly, our CEO, in the Supreme Court of the State of
New York, County of New York, claiming that they are entitled to approximately
$4,400,000 of damages relating to alleged breaches of a contract for a
residential construction project. On May 7, 2002, we filed an answer denying the
plaintiffs' claims and seeking approximately $45,418 in a counterclaim for
uncollected accounts. We believed that we had meritorious defenses and that the
likelihood of an unfavorable outcome was remote. On November 1, 2005, we settled
this matter by agreeing to pay $60,000 to the plaintiffs in six equal monthly
installments beginning December 1, 2005.

On August 5, 2004, we commenced an action in the New York State Supreme Court,
County of New York, seeking to collect approximately $1,255,000 of contractual
billings relating to a large roof tar removal project. On October 15, 2004, the
Economic Development Corporation filed an answer, denying our claims. On
November 4, 2004, the Economic Development Corporation filed an amended answer
denying our claims and asserting counterclaims. The case is currently in
pre-trial discovery.

In April 2003, we commenced a remediation project in New York City for a local
utility to remove sediment from an oil storage tank. During the course of the
project, the sediment in the tank was found to be substantially different than
the sediment that the customer represented to be in the tank prior to the
inception of the project. We continued to work on the project so as not to
default on the terms which it understood to exist with the customer. The
additional costs incurred to remove this matter were approximately $1,600,000.
As of June 28, 2005, we recognized revenue of approximately $1,700,000 with
respect to the original scope of this project. All amounts due under the
original contract have been paid. We have not recognized the revenue associated
with its claim. The project has been substantially completed and the customer
has refused to acknowledge its liability for these additional charges billed. On
October 22, 2004, we commenced an action against a local utility company in the
New York State Supreme Court, County of New York, claiming that we are entitled
to approximately $2,000,000 of contractual billings and related damages in
connection with this matter. On December 6, 2004, the local utility company
filed an answer, denying our claims. The case is currently in pre-trial
discovery.

We are a plaintiff in approximately 20 lawsuits claiming an aggregate of
approximately $5,000,000 pursuant to which we are seeking to collect amounts we
believe are owed to us by customers that are included in our accounts
receivable, primarily with respect to changed work orders or other modifications
to our scope of work. The defendants in these actions have asserted
counterclaims for an aggregate of approximately $500,000.

We are 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 our consolidated
financial statements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

See Note 7 to the consolidated financial statements for details of the issuance
to Laurus Master Fund, Ltd. of a secured convertible debenture and related
common stock purchase option and warrant. Such issuance, previously reported by
the Company on Form 8-K, was exempt from registration under The Securities Act
in that it did not constitute a public offering.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holder

Not applicable.

Item 5. Other Information

Not applicable.


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Item 6. Exhibits and Reports on Form 8-K

      The following exhibits are included as part of this report:

      10.1  Employment Agreement, dated June 30, 2005, between Windswept and
            Michael O'Reilly. (Incorporated by reference to Exhibit 10.15 of
            Windswept's Current Report on Form 8-K (Date of Report: June 30,
            2005) filed with the SEC on July 7, 2005).

      10.2  Option to purchase 15,464,964 shares of common stock dated June 30,
            2005, issued by Windswept to Michael O'Reilly. (Incorporated by
            reference to Exhibit 10.6 of Windswept's Current Report on Form 8-K
            (Date of Report: June 30, 2005) filed with the SEC on July 7, 2005).

      10.3  Amendment No. 1 to the Account Receivable Finance Agreement, dated
            June 30, 2005, by and among Windswept, Trade-Winds and Spotless.
            (Incorporated by reference to Exhibit 10.19 of Windswept's Current
            Report on Form 8-K (Date of Report: June 30, 2005) filed with the
            SEC on July 7, 2005).

      10.4  Securities Purchase Agreement, dated June 30, 2005, by and between
            Windswept and Laurus. (Incorporated by reference to Exhibit 10.1 of
            Windswept's Current Report on Form 8-K (Date of Report: June 30,
            2005) filed with the SEC on July 7, 2005).

      10.5  Funds Escrow Agreement, dated June 30, 2005, by and among Windswept,
            Laurus and Loeb & Loeb LLP, as escrow agent. (Incorporated by
            reference to Exhibit 10.24 of Windswept's Current Report on Form 8-K
            (Date of Report: June 30, 2005) filed with the SEC on July 7, 2005).

      10.6  $5,000,000 Secured Convertible Term Note, dated June 30, 2005,
            issued by Windswept to Laurus. (Incorporated by reference to Exhibit
            10.2 of Windswept's Current Report on Form 8-K (Date of Report: June
            30, 2005) filed with the SEC on July 7, 2005).

      10.7  $5,350,000 Amended and Restated Secured Convertible Term Note, dated
            July 13, 2005, issued by Windswept to Laurus Master Fund, Ltd.
            (Incorporated by reference to Exhibit 10.1 of Windswept's Current
            Report on Form 8-K (Date of Report: July 13, 2005) filed with the
            SEC on July 13, 2005).

      10.8  $6,000,000 Amended and Restated Secured Convertible Term Note, dated
            September 9, 2005, issued by Windswept to Laurus. (Incorporated by
            reference to Exhibit 10.01 of Windswept's Current Report on Form 8-K
            (Date of Report: September 9, 2005) filed with the SEC on September
            15, 2005.

      10.9  $7,350,000 Amended and Restated Secured Convertible Term Note, dated
            October 6, 2005, issued by Windswept to Laurus. (Incorporated by
            reference to Exhibit 10.1 of Windswept's Current Report on Form 8-K
            (Date of Report: October 6, 2005) filed with the SEC on October 6,
            2005).

      10.10 Option, dated June 30, 2005, issued by Windswept to Laurus.
            (Incorporated by reference to Exhibit 10.3 of Windswept's Current
            Report on Form 8-K (Date of Report: June 30, 2005) filed with the
            SEC on July 7, 2005).

      10.11 Common Stock Purchase Warrant, dated June 30, 2005, issued by
            Windswept to Laurus. (Incorporated by reference to Exhibit 10.4 of
            Windswept's Current Report on Form 8-K (Date of Report: June 30,
            2005) filed with the SEC on July 7, 2005).

      10.12 Master Security Agreement, dated June 30, 2005, by and among
            Windswept, Trade-Winds Environmental Restoration Inc.
            ("Trade-Winds"), North Atlantic Laboratories, Inc. ("North
            Atlantic") and Laurus. (Incorporated by reference to Exhibit 10.5 of
            Windswept's Current Report on Form 8-K (Date of Report: June 30,
            2005) filed with the SEC on July 7, 2005).

      10.13 Option to purchase 250,000 shares of common stock, dated June 30,
            2005, issued by Windswept to Dr. Kevin Phillips. (Incorporated by
            reference to Exhibit 10.7 of Windswept's Current Report on Form 8-K
            (Date of Report: June 30, 2005) filed with the SEC on July 7, 2005).

      10.14 Option to purchase 250,000 shares of common stock, dated June 30,
            2005, issued by Windswept to Gary Molnar. (Incorporated by reference
            to Exhibit 10.8 of Windswept's Current Report on Form 8-K (Date of
            Report: June 30, 2005) filed with the SEC on July 7, 2005).

      10.15 Forbearance and Deferral Agreement, dated June 30, 2005, by and
            among Windswept, Michael O'Reilly, the Series A Convertible
            Preferred Stockholders and Laurus. (Incorporated by reference to
            Exhibit 10.9 of Windswept's Current Report on Form 8-K (Date of
            Report: June 30, 2005) filed with the SEC on July 7, 2005).

      10.16 Transition Services Agreement, dated June 30, 2005, by and between
            Spotless Plastics (USA) and Windswept. (Incorporated by reference to
            Exhibit 10.10 of Windswept's Current Report on Form 8-K (Date of
            Report: June 30, 2005) filed with the SEC on July 7, 2005).

      10.17 Bonding Support Letter from Michael O'Reilly to Windswept and
            Laurus. (Incorporated by reference to Exhibit 10.11 of Windswept's
            Current Report on Form 8-K (Date of Report: June 30, 2005) filed
            with the SEC on July 7, 2005).

      10.18 Registration Rights Agreement, dated June 30, 2005, by and between
            Windswept and Laurus. (Incorporated by reference to Exhibit 10.12 of
            Windswept's Current Report on Form 8-K (Date of Report: June 30,
            2005) filed with the SEC on July 7, 2005).


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<PAGE>

      10.19 Stock Pledge Agreement, dated June 30, 2005, by and among Windswept,
            Trade-Winds, North Atlantic and Laurus. (Incorporated by reference
            to Exhibit 10.13 of Windswept's Current Report on Form 8-K (Date of
            Report: June 30, 2005) filed with the SEC on July 7, 2005).

      10.20 Subsidiary Guaranty, dated the June 30, 2005, from Trade-Winds and
            North Atlantic to Laurus Registration Rights Agreement, dated June
            30, 2005, by and between Windswept and Laurus. (Incorporated by
            reference to Exhibit 10.14 of Windswept's Current Report on Form 8-K
            (Date of Report: June 30, 2005) filed with the SEC on July 7, 2005).

      10.21 Secured Promissory Note, dated June 30, 2005, issued by Windswept to
            Spotless in the principal amount of $500,000. (Incorporated by
            reference to Exhibit 10.25 of Windswept's Current Report on Form 8-K
            (Date of Report: June 30, 2005) filed with the SEC on July 7, 2005).

      10.22 Security Agreement, dated June 30, 2005, between North Atlantic and
            Spotless. (Incorporated by reference to Exhibit 10.18 of Windswept's
            Current Report on Form 8-K (Date of Report: June 30, 2005) filed
            with the SEC on July 7, 2005). 10.23 Security Agreement, dated June
            30, 2005, between Windswept and Spotless Plastics (USA) Inc.
            (Incorporated by reference to Exhibit 10.16 of Windswept's Current
            Report on Form 8-K (Date of Report: June 30, 2005) filed with the
            SEC on July 7, 2005).

      10.24 Security Agreement, dated June 30, 2005, between Trade-Winds and
            Spotless. (Incorporated by reference to Exhibit 10.17 of Windswept's
            Current Report on Form 8-K (Date of Report: June 30, 2005) filed
            with the SEC on July 7, 2005). 10.25 Subordination Agreement, dated
            June 30, 2005, by and between Spotless and Laurus, acknowledged by
            Windswept. (Incorporated by reference to Exhibit 10.26 of
            Windswept's Current Report on Form 8-K (Date of Report: June 30,
            2005) filed with the SEC on July 7, 2005).

      10.26 Account Receivable Sale Agreement, dated June 30, 2005, by and among
            Spotless, Windswept and TradeWinds. (Incorporated by reference to
            Exhibit 10.27 of Windswept's Current Report on Form 8-K (Date of
            Report: June 30, 2005) filed with the SEC on July 7, 2005).

      10.27 Termination Agreement, dated June 30, 2005, by and between
            Trade-Winds and Spotless. (Incorporated by reference to Exhibit
            10.20 of Windswept's Current Report on Form 8-K (Date of Report:
            June 30, 2005) filed with the SEC on July 7, 2005).

      10.28 Termination Agreement, dated June 30, 2005, by and between North
            Atlantic and Spotless. (Incorporated by reference to Exhibit 10.21
            of Windswept's Current Report on Form 8-K (Date of Report: June 30,
            2005) filed with the SEC on July 7, 2005).

      10.29 Termination Agreement, dated June 30, 2005, by and between Windswept
            and Spotless. (Incorporated by reference to Exhibit 10.22 of
            Windswept's Current Report on Form 8-K (Date of Report: June 30,
            2005) filed with the SEC on July 7, 2005).

      10.30 Release, dated June 30, 2005, by and among Windswept, Spotless,
            Peter Wilson, John Bongiorno, Ronald Evans, Charles L. Kelly, Jr.,
            Brian Blythe and Joseph Murphy. (Incorporated by reference to
            Exhibit 10.23 of Windswept's Current Report on Form 8-K (Date of
            Report: June 30, 2005) filed with the SEC on July 7, 2005).

      10.31 Lease Agreement dated September 2, 2005 between Trade-Winds and
            Alberta Bentily. (Incorporated by reference to Exhibit 10.01 of
            Windswept's Current Report on Form 8-K (Date of Report: September 1,
            2005) filed with the SEC on September 8, 2005).

      10.32 Lease Agreement dated September 8, 2005 between Trade-Winds and Mark
            J. Anderson (Incorporated by reference to Exhibit 10.48 of
            Windswept's Annual Report Form 10-K for the fiscal year ended June
            28, 2005, filed with the SEC on October 3, 2005).

      10.33 Amendment and Deferral Agreement, dated November 10, 2005, by and
            between Windswept and Laurus (Incorporated by reference to Exhibit
            10.1 of Windswept's Current Report on Form 8-K (Date of Report:
            November 10, 2005) filed with the SEC on November 14, 2005).

      31.1  Certification of Chief Executive Officer pursuant to Sarbanes-Oxley
            Section 302(a).

      31.2  Certification of Chief Financial Officer pursuant to Section 302(a).

      32.1  Certification of Chief Executive Officer and Chief Financial Officer
            pursuant to 18 U.S.C. Section 1350.

Reports on Form 8-K:

During the thirteen weeks ended September 27, 2005, the Company filed reports on
Forms 8-K or 8-K/A dated July 7, July 11, July 13, August 31, September 8 and
September 15. These filings related principally to the Laurus financing and
related agreements, a change in the Company's registered accounting firm and a
departure of directors and officers.


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                                   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.

                                           WINDSWEPT ENVIRONMENTAL GROUP, INC.


Date: October 19, 2006                  By: /s/ Michael O'Reilly
                                           -------------------------------------
                                           MICHAEL O'REILLY
                                           President and Chief Executive Officer
                                           (Principal Executive Officer)


Date: October 19, 2006                  By: /s/ Arthur J. Wasserspring
                                           -------------------------------------
                                           ARTHUR J. WASSERSPRING
                                           Chief Financial Officer
                                           (Principal Financial Officer)


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