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

                                   FORM 10-QSB

(Mark One)

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

           For the quarterly period ended July 31, 1998

( )        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 small business issuer as specified in its charter)

            Delaware                                         11-2844247
  (State of other jurisdiction of                          (IRS Employer
   incorporation or organization)                      Identification Number)

                100 Sweeneydale Avenue, Bay Shore, New York 11706
                    (Address of principle executive offices)

                                 (516) 694-7060
                           (Issuer's telephone number)

Indicate by check mark  whether the issuer (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 the number of shares  outstanding  of each of the  issuer's  classes of
common equity, as of the latest practicable date.

Common Stock, Par Value $.0001                 12,844,463
(Title of Each Class)                         (Outstanding at August 31, 1998)


Transitional Small Business Disclosure Format (check one):  Yes ___   No _X_  



<PAGE>



PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements

                       WINDSWEPT ENVIRONMENTAL GROUP, INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                           July 31,
                                                                                             1998           April 30,
                                                                                          (Unaudited)         1998    
                                                                                          ------------    ------------
<S>                                                                                       <C>             <C>         
                                     ASSETS

CURRENT ASSETS
   Cash                                                                                   $     65,732    $     33,915
   Accounts receivable, net of allowance for doubtful
      accounts of $120,000 and $280,000, respectively                                        2,560,254       2,517,517
   Inventories                                                                                 149,226         161,266
   Costs and estimated earnings in excess of billings on uncompleted contracts                 138,000          55,352
   Prepaid and other current assets                                                            247,432         325,061
                                                                                          ------------    ------------
           Total current assets                                                              3,160,644       3,093,111

PROPERTY AND EQUIPMENT, net of accumulated depreciation of
    $2,155,876 and $1,953,634, respectively                                                  2,633,759       2,799,191

OTHER ASSETS
   Goodwill, net of accumulated amortization of $38,893 and $36,526, respectively               83,133          85,500
   Note receivable, net of current portion of $81,833 and $80,460, respectively                194,126         209,245
   Other assets                                                                                152,841         167,642
                                                                                          ------------    ------------
   TOTAL ASSETS                                                                           $  6,224,503    $  6,354,689
                                                                                          ============    ============
                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
   Accounts payable and accrued expenses                                                  $  3,206,428    $  3,361,578
   Revolving credit note payable                                                             1,583,462            --
   Advances from factor                                                                           --         1,505,968
   Billings in excess of costs and estimated earnings on uncompleted contracts                 195,000         266,000
   Payroll taxes payable                                                                       246,308         641,790
   Current portion of long-term debt                                                           703,281         955,367
   Obligations of unconsolidated subsidiary, net                                               196,112         196,112
                                                                                          ------------    ------------
           Total current liabilities                                                         6,130,591       6,926,815

OTHER LIABILITIES
   Convertible notes                                                                           790,000         800,000
   Long-term debt, net of current portion                                                      666,166         227,604
   Other liabilities                                                                              --            37,000
                                                                                          ------------    ------------
           Total liabilities                                                                 7,586,757       7.991,419
                                                                                          ------------    ------------

COMMITMENTS AND CONTINGENCIES

SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
 par value $.01; 1,300,000 shares issued and outstanding                                     1,300,000       1,300,000

STOCKHOLDERS' EQUITY (DEFICIT)
   Preferred stock, $.01 par value,
     10,000,000 shares authorized                                                                 --              --
   Common stock, $.0001 par value,
     50,000,000 shares authorized;
     12,369,750 and 11,552,374 shares issued and outstanding, respectively                       1,237           1,155
   Additional paid-in capital                                                               28,357,638      28,126,648
   Accumulated deficit                                                                     (30,966,659)    (30,989,396)
   Less deferred compensation                                                                  (54,470)        (75,137)
                                                                                          ------------    ------------
           Total stockholders' equity (deficit)                                             (2,662,254)     (2,936,730)
                                                                                          ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                      $  6,224,503    $  6,354,689
                                                                                          ============    ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                        1


<PAGE>


                       WINDSWEPT ENVIRONMENTAL GROUP, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                           FOR THE THREE MONTHS ENDED
                                   (Unaudited)



<TABLE>
<CAPTION>
                                                                     July 31,        July 31,
                                                                       1998            1997  
                                                                   ------------    ------------
<S>                                                                <C>             <C>         
   Revenues                                                        $  3,443,463    $  3,295,363
   Cost of revenues                                                   2,321,157       3,184,914
                                                                   ------------    ------------
           Gross profit                                               1,122,306         110,449
   Selling, general and administrative expenses                         838,595       1,176,220
                                                                   ------------    ------------
           Income (loss) from operations                                283,711      (1,065,771)
                                                                   ------------    ------------
Other income (expense):
   Interest expense                                                    (276,306)       (308,237)
   Gain on disposal of equipment                                         15,332            --   
                                                                   ------------    ------------
           Total other income (expense)                                (260,974)       (308,237)
                                                                   ------------    ------------
           Net income (loss)                                             22,737      (1,374,008)

Dividends on Series A Convertible Preferred Stock                        19,500          23,146
                                                                   ------------    ------------
           Net income (loss) attributable to common shareholders          3,237      (1,397,154)
                                                                  ------------    ------------
Basic and diluted net income (loss) per common share               $        .00    $       (.14)
                                                                   ------------    ============
Weighted average number of  common shares outstanding                12,185,528       9,835,410
                                                                   ============    ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                        2


<PAGE>




                       WINDSWEPT ENVIRONMENTAL GROUP, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                    FOR THE THREE MONTHS ENDED JULY 31, 1998
                                   (Unaudited)


<TABLE>
<CAPTION>
                                              Common Stock 
                                        ---------------------------   Additional
                                          Number of        Par          Paid-in       Accumulated       Deferred
                                           Shares         Value         Capital         Deficit       Compensation        Total    
                                        ------------   ------------   ------------    ------------    ------------    ------------
<S>                                       <C>          <C>            <C>             <C>             <C>             <C>          
Balance at April 30, 1998                 11,552,374   $      1,155   $ 28,126,648    $(30,989,396)   $    (75,137)   $ (2,936,730)

Proceeds from private placements of
common stock                                 425,000             42         67,958            --              --            68,000

Note conversion                               20,000              2          9,998            --              --            10,000

Issuance of common stock for services        247,376             25        124,147            --              --           124,172

Issuance of common stock for
employee and director compensation           125,000             13         48,387            --              --            48,400

Amortization of deferred compensation           --             --             --              --            20,667          20,667

Dividends paid                                  --             --          (19,500)           --              --           (19,500)

Net income                                      --             --             --            22,737            --            22,737
                                        ------------   ------------   ------------    ------------    ------------    ------------
Balance at July 31, 1998                  12,369,750   $      1,237   $ 28,357,638    $(30,966,659)   $    (54,470)   $ (2,662,254)
                                        ============   ============   ============    ============    ============    ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                        3

<PAGE>

                       WINDSWEPT ENVIRONMENTAL GROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           FOR THE THREE MONTHS ENDED
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                       July 31,      July 31,
                                                                                        1998           1997  
                                                                                    -----------    -----------
<S>                                                                                 <C>            <C>       
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)                                                                $    22,737    $(1,374,008)
   Adjustments to reconcile net income (loss) to net cash
   used by operating activities:
     Depreciation and amortization                                                      255,077        542,562
     Provision for doubtful accounts                                                       --           76,997
     Issuance of common stock for director compensation                                  11,400         60,776
     Gain on disposal of equipment                                                      (15,332)          --
   Changes in operating assets and liabilities:
     Accounts receivable                                                                (42,737)      (916,108)
     Inventories                                                                         12,040        (18,479)
     Costs and estimated earnings in excess of billings on uncompleted contracts        (82,648)          --
     Due from officer                                                                      --          (49,053)
     Prepaid and other current assets                                                    78,822        149,468
     Other assets                                                                          --           (9,567)
     Accounts payable and accrued expenses                                              (30,979)       420,620
     Payroll taxes payable                                                             (395,482)       180,311
     Billings in excess of costs and estimated earnings  on uncompleted contracts       (71,000)       213,035
                                                                                    -----------    -----------
NET CASH USED BY OPERATING ACTIVITIES                                                  (258,102)      (723,446)
                                                                                    -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES
   Collection of notes receivable                                                        13,926          4,157
   Proceeds from insurance settlement                                                    20,332           --
   Purchases of property and equipment                                                  (56,810)      (390,091)
                                                                                    -----------    -----------
NET CASH USED BY INVESTING ACTIVITIES                                                   (22,552)      (385,934)
                                                                                    -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES
   Principal payments of long-term debt and factor advances                          (1,914,491)      (150,154)
   Proceeds from revolving bank line, net                                             1,583,462        745,930
   Proceeds from equipment term loan                                                    595,000           --
   Dividends paid on redeemable preferred stock                                         (19,500)       (23,346)
   Proceeds from issuance of common stock                                                68,000           --   
                                                                                    -----------    -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                               312,471        572,430
                                                                                    -----------    -----------
NET INCREASE (DECREASE) IN CASH                                                          31,817       (536,950)

CASH -BEGINNING                                                                          33,915        654,377
                                                                                    -----------    -----------
CASH - ENDING                                                                       $    65,732    $   117,427
                                                                                    ===========    ===========
Cash paid during the period for:

Interest                                                                            $   299,386    $    34,027
                                                                                    ===========    ===========
Taxes                                                                               $     1,500    $      --   
                                                                                    ===========    ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                        4

<PAGE>



                       WINDSWEPT ENVIRONMENTAL GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       FOR THE QUARTER ENDED JULY 31, 1998
                                   (Unaudited)

1.         BASIS OF PRESENTATION

           The   accompanying   unaudited   condensed   consolidated   financial
           statements  of the  Company  have  been  prepared  by  management  in
           accordance with generally accepted accounting  principles for interim
           financial  information  and with the  instructions to Form 10-QSB and
           Item 310 of Regulation S-B.  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  management,   all  adjustments   (consisting  of  normal
           recurring accruals) considered necessary for a fair presentation have
           been included.  The results of operations for interim periods are not
           necessarily  indicative  of the results to be  expected  for the full
           year. These consolidated  interim financial statements should be read
           in  conjunction  with the  financial  statements  and  notes  thereto
           included in the Company's Form 10-KSB for the fiscal year ended April
           30, 1998.

2.         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

           Reclassifications  - Certain  amounts  included  in the prior  year's
           consolidated  financial  statements have been reclassified to conform
           with the current period presentation.

3          LIQUIDITY AND BUSINESS RISKS

           The Company's  financial  statements have been prepared assuming that
           the Company will continue as a going concern. As of July 31, 1998 the
           Company has a stockholders'  deficit of $2,662,254 and an accumulated
           deficit of  $30,966,659.  The Company has financed its  operations to
           date primarily  through issuances of debt and equity  securities.  At
           July 31, 1998, the Company had $65,732 in cash, and a working capital
           deficit of  $2,969,947.  In addition,  as of August 31, 1998 and July
           31, 1998, the Company was in arrears with respect to certain  payroll
           tax obligations of approximately $211,000 and $246,000, respectively,
           and as of July 31, 1998 with respect to preferred  stock dividends of
           $70,775.  These factors raise  substantial  doubt about the Company's
           ability to continue as a going concern. These financial statements do
           not include  any  adjustments  that might  result from the outcome of
           this uncertainty.

           In June 1998, the Company entered into a revolving credit facility to
           obtain a revolving  credit line of $2,445,000,  secured by certain of
           the Company's  assets.  The current quarter's results reflect efforts
           to improve  the  Company's  overall  gross  margins  and  control its
           selling,  general,  and  administrative  expenses.  Revenue growth is
           expected to continue  and further  expense  reductions  are  planned;
           however,  no assurance  can be given in this  regard.  The Company is
           currently  engaged in various  discussions  with potential  investors
           regarding  possible equity  transactions.  There can be no assurance,
           however,  that  changes  in  the  Company's  plans  or  other  events
           affecting the Company's  operations will not result in accelerated or
           unexpected  cash  requirements,  or that it  will  be  successful  in
           obtaining the  additional  financing to meet its  obligations as they
           become due. The Company's  future cash  requirements  are expected to
           depend on numerous  factors,  including,  but not limited to: (i) the
           ability  to  successfully   bid  on   environmental  or  construction
           contracts  (ii) the  ability  to  generate  positive  cash  flow from
           operations,  and the  extent  thereof,  (iii)  the  ability  to raise
           additional capital or obtain additional financing,  and (iv) economic
           conditions.

4.         EQUITY TRANSACTIONS

           On August 18, 1998 the Company's  Board of Directors  granted options
           to purchase  750,000  shares of common stock to the  directors of the
           Company,  which included 250,000 to the Chief Executive  Officer.  In
           addition,  options to purchase  100,000  shares of common  stock were
           issued to the Company'sChief  Financial Officer. All of these options
           are exercisable  immediately at an exercise price of $.34, and expire
           August 17, 2003.

           On August 20, 1998 the  Company's  Board of  Directors  approved  the
           Company's 1998 Stock  Incentive  Plan  ("Plan").  Under the Plan, the
           Company is  permitted  to grant  awards up to a maximum of  2,000,000
           shares of common stock as restricted stock,  incentive stock options,
           non-qualified options, phantom stock and otherwise.


                                        5


<PAGE>

                       WINDSWEPT ENVIRONMENTAL GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       FOR THE QUARTER ENDED JULY 31, 1998
                                   (Unaudited)

4.         EQUITY TRANSACTIONS (cont.)

           During the quarter ended July 31, 1998 the Company  received  $68,000
           from a group of private  accredited  investors for 425,000 shares, or
           $.16  per  common  share.  In  addition,  a  convertible   noteholder
           converted  a $10,000  note  into20,000  shares of common  stock.  The
           Company  issued  247,376  shares valued at $124,172  related to prior
           fiscal  year  obligations  for legal  and  consulting  services.  The
           Company  issued  100,000  shares of common stock valued at $37,000 to
           its  Vice  President  of  Business  Development  which  it  had  been
           contractually  obligated to issue.  The Company's five directors were
           issued 5,000 shares each valued at $11,400 in the aggregate.

           In August  1998,  the Company  issued  474,713  shares for  services,
           including 324,713 common shares for legal and consulting services. In
           addition,  the Company  issued 150,000 common shares to an accredited
           investor  in a  private  placement  for which  the  Company  received
           $30,000, or $.20 per common share.

5.         RELATED PARTY TRANSACTIONS

           The Company purchased  materials and supplies of $32,483,  and had an
           outstanding  balance payable at July 31, 1998 of $54,364 to a Company
           with which one of its directors is  affiliated.  The same director is
           owed $100,000 on a 12%  convertible  note payable in full in December
           1999.

6.         DEBT

           On June 1, 1998 the Company entered into a two-year Loan and Security
           Agreement   ("LSA")  with  Business   Alliance  Capital   Corporation
           ("BACC").  The LSA  consisted  of two parts,  a term loan of $595,000
           collateralized by the Company's  equipment and revolving  advances up
           to a maximum of $1,850,000,  collateralized by the Company's accounts
           receivable,  subject  to a  borrowing  base  of 80% of the  Company's
           eligible  accounts,  as  defined.  Interest on the LSA is at 3% above
           prime.  The term loan  carries a five  year  principal  amortization.
           Interest  is  calculated  on a monthly  minimum  daily  average  loan
           balance  of  $750,000.  The LSA  carries  an  annual  fee of 1% and a
           servicing fee of .5% monthly (to be adjusted to .3% after the Company
           satisfies certain conditions,  as defined) of the average outstanding
           balance of the  advances.  The  Company  is  required  to  maintain a
           $250,000  life  insurance  policy  on its CEO with  BACC  named as an
           irrevocable  beneficiary.   The  Company's  CEO  has  given  BACC  an
           unlimited personal guaranty on the LSA. In the event of a default, as
           defined,  the  Company is  required  to pay  interest at 8% above the
           prime rate to BACC. In conjunction with the LSA, the Company utilized
           approximately  $218,000 of the  proceeds of the term loan to repay in
           full the  outstanding  note  payable  to the bank and  certain  other
           equipment  related  capital lease  obligations.  The Company  further
           utilized  $200,000 of the  proceeds to effect an  agreement  with the
           Internal  Revenue  Service  relating to its overdue payroll taxes. On
           July 1, 1998,  the Company  terminated  its  factoring  agreement and
           transferred  its receivable  collaterization  to BACC. The Factor was
           paid  $1,432,638 in full  satisfaction  of the Company's  outstanding
           liability  to it.  The  Company  received  an  additional  advance of
           $210,000, for a total initial advance of $1,642,638.

7.         STATEMENTS OF CASH FLOWS

           During  the  quarter  ended July 31,  1998,  the  Company's  non cash
           operating  activities  included  the  payment of  $124,172 in current
           liabilities  utilizing  its common  stock.  The Company also utilized
           $37,000 in common stock to satisfy a previous contractual obligation.
           See Note 4.


                                        6


<PAGE>


                       WINDSWEPT ENVIRONMENTAL GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       FOR THE QUARTER ENDED JULY 31, 1998
                                   (Unaudited)

8.         COMMITMENTS AND CONTINGENCIES

           Litigation

           In October 1996, the United States Attorney for the Eastern  District
           of New York obtained a federal grand jury indictment  against,  among
           others, the Company's former Chief Operating Officer, Leo Mangan, and
           former  Special  Securities  Counsel,  James Nearen,  on charges that
           include violations of federal  securities law,  including  fraudulent
           issuances of 700,000 shares of the Company's common stock. Mr. Mangan
           and Mr. Nearen both subsequently pleaded guilty to the charges in the
           Federal  indictment.  To date, no charges have been filed against the
           Company or any other member of  management as a result of the Eastern
           District  investigation.  The Company is awaiting the decision of the
           Securities  and  Exchange  Commission  as to whether it will follow a
           staff  recommendation  that an enforcement action be filed seeking an
           injunction  against  future  violations of the  securities  laws. The
           Company has  vigorously  opposed this  recommendation  on the grounds
           that all employees  accused of wrongdoing  have been  terminated  and
           other adequate  remedial  measures have been taken voluntarily by the
           Company.

           The Company is a defendant in a litigation matter whereby one or more
           plaintiffs claim to be entitled to additional wages while working for
           a subcontractor of the Company.  The amount of the claim has not been
           specified.  Management  believes that the case is without merit,  and
           intends to defend the action vigorously.

           The Company is party to other litigation matters and claims which are
           normal in the  course of its  operations,  and while the  results  of
           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  consolidated  financial  position,
           results of operations and cash flows of the Company.

           Other Proceedings

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

           Sales tax examination

           The  Company  is  presently  undergoing  a New York  State  sales tax
           examination for the period March 1, 1994 through  September 28, 1997.
           The  examination  is still in progress  and the  findings  are as yet
           inconclusive.

           Settlement with IRS

           In June 1998,  the Company  reached a tentative  settlement  with the
           Internal Revenue Service ("IRS") relating to its outstanding  payroll
           tax  liability.  The  Company  has  paid  the  IRS  $305,000  through
           September 2, 1998, and is expected to remit an additional $105,000 in
           three monthly installments of $35,000 through December 1998.


                                        7


<PAGE>



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

The following  discussion of the fiscal  quarters  ended July 31, 1998 and 1997,
should  be  read in  conjunction  with  the  Consolidated  Financial  Statements
contained herein, including the notes thereto.

This  Item 2 and  other  items  in  this  Form  10-QSB  contain  forward-looking
statements  within the meaning of Section 27A of the  Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The Company's actual results
could differ materially from those set forth in the forward-looking  statements.
Forward-looking  statements  included  in this  Form  10-QSB  involve  known and
unknown risks, uncertainties and other factors which could cause actual results,
performance  (financial and operating) or  achievements  expressed or implied by
such  forward  looking  statements  not to occur or be  realized.  Such  forward
looking statements generally are based upon the best estimates by the Company of
future results,  performance or achievement,  based upon current  conditions and
the most  recent  results  of  operations.  Forward  looking  statements  may be
identified  by the use of forward  looking  terminology  such as "may",  "will",
"expect",  "believe",  "estimate",  "anticipate",  "continue", or similar terms,
variations  of those terms or the negative of those terms.  Potential  risks and
uncertainties  include,  among other  things,  such factors as the amount of the
Company's  revenues,  the success of the  Company in  limiting  or reducing  its
expenses, the frequency and magnitude of environmental disasters or disruptions,
the effects of new laws or regulations  relating to  environmental  remediation,
the Company's ability to raise capital,  the competitive  environment within the
Company's industry,  dependence on key personnel,  economic conditions,  and the
other factors and information  disclosed and discussed in other sections in this
Form  10-QSB,  and in the  Company's  annual  report on Form 10-KSB for the year
ended April 30, 1998. Readers of this Form 10-QSB 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.

RESULTS OF OPERATIONS

Net income and net income  per share  were  $22,737  and $0 for the  three-month
period  ended  July 31,  1998  compared  to net  loss and net loss per  share of
$(1,374,008)  and $(.14) during the same period in 1997.  Revenues  increased by
$148,100, or 4%, from $3,295,363 to $3,443,463, while gross margins increased to
33% compared to 3% for the first  quarter of fiscal 1998.  Growth in the revenue
of the Company's  subsidiaries,  North Atlantic  Laboratories  Inc. and New York
Testing  Laboratories  Inc.,  accounted  for 83% of the increased  revenue.  The
increased margins were attributable  primarily to management  efforts during the
past year to  provide a  broader  and more  profitable  mix of  services  at its
Trade-Winds  subsidiary,  whose margins increased to 29% from negligible levels.
In addition,  management  has become more  proficient in estimating  its project
costs and has turned down work where competitive factors would lead to projected
project  losses.  The gross  margins  in the period  ended July 31,  1997 were a
result  of  the  recognition  of  losses  in  that  period  related  to  certain
longer-term  contracts with projected  losses,  the effect of higher labor costs
due to  unionization  in June 1996,  and cost  overruns  on certain  fixed price
contracts during the quarter ended July 31, 1997.

Selling,  general and administrative expenses declined by $337,625, or 29%, from
$1,176,220  in the  three-month  period  ended July 31,  1997 to $838,595 in the
three-month  period ended July 31, 1998.  The decline was  primarily  related to
approximate  reductions as follows:  bad debt expense,  $77,000 (due to improved
internal controls and management  collection efforts);  legal expenses,  $62,000
(due  to  a  reduction   in  SEC   investigation   and   compliance   and  other
non-operational type legal matters), health insurance, $37,000 (due to mandatory
contributions  required of employees  since the third  quarter of fiscal  1998),
goodwill amortization expense of $36,000 (due to the impairment loss recorded in
the fourth quarter of fiscal1998),  fines and penalties, $22,000 (reduced due to
the settlement agreement with the Internal Revenue Service), and sales salaries,
$86,000 (due to the staff reduction in February 1998).

Interest  expense  declined  $31,931,  or 10% , from $308,237 in the three-month
period  ended July 31,  1997 to $276,306 in the  three-month  period  ended July
31,1998. The substantial interest expense during the quarter ended July 31, 1998
was  principally  attributable  to the high cost of receivable  factoring in the
months of May and June 1998. The Company began its borrowing base agreement with
BACC as of July  2,1998.  (See Note 6 to the  Condensed  Consolidated  Financial
Statements).  The LSA carries an annualized  interest rate of approximately 18%.
During  the  quarter  ended July 31,  1997 the  Company  incurred  approximately
$240,000 of interest  expense  relating  to the  accretion  of a discount on the
$700,000 of convertible notes issued in the fourth quarter of fiscal 1997.


                                        8

<PAGE>

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


LIQUIDITY AND CAPITAL RESOURCES

The Company's financial  statements have been prepared assuming that the Company
will  continue  as a going  concern.  As of July  31,  1998  the  Company  has a
stockholders'  deficit of $2,662,254 and an accumulated  deficit of $30,966,659.
The Company has financed its operations to date primarily  through  issuances of
debt and equity  securities.  At July 31, 1998, the Company had $65,732 in cash,
and a working capital deficit of $2,969,947.  In addition, as of August 31, 1998
and July 31, 1998,  the Company was in arrears  with respect to certain  payroll
tax obligations of approximately $211,000 and $246,000,  respectively, and as of
July 31, 1998 with  respect to  preferred  stock  dividends  of  $70,775.  These
factors raise  substantial  doubt about the  Company's  ability to continue as a
going concern.  These financial  statements do not include any adjustments  that
might result from the outcome of this uncertainty.

In June 1998, the Company  entered into a revolving  credit facility to obtain a
revolving credit line of $2,445,000, secured by certain of the Company's assets.
The  current  quarter's  results  reflect  managements  efforts to  improve  the
Company's  gross margins and control its selling,  general,  and  administrative
expenses.  Revenue growth is expected to continue and further expense reductions
are planned;  however,  no assurance can be given in this regard. The Company is
currently  engaged in various  discussions  with potential  investors  regarding
possible equity transactions.  There can be no assurance,  however, that changes
in the Company's plans or other events  affecting the Company's  operations will
not result in accelerated or unexpected  cash  requirements,  or that it will be
successful in obtaining the additional financing to meet its obligations as they
become due. The  Company's  future cash  requirements  are expected to depend on
numerous factors, including, but not limited to: (i) the ability to successfully
bid on  environmental  or  construction  contracts  (ii) the ability to generate
positive cash flow from operations, and the extent thereof, (iii) the ability to
raise  additional  capital or obtain  additional  financing,  and (iv)  economic
conditions.

The  Company  believes  that its current  resources  together  with  anticipated
continued positive cash flow from operation, if any, and the LSA, should provide
sufficient  cash to meet the Company's needs for  approximately  the next twelve
months.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

           See Note 8 to the Condensed Consolidated Financial Statements.

Item 2. Changes in Securities

           None

Item 3. Defaults Upon Senior Securities

           None


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

           None

Item 5. Other Information

           None

Item 6. Exhibits and Reports on Form 8-K

           (a)       Exhibits: 27 - Financial Data Schedule
           (b)       Reports on Form 8-K

                     No reports on Form 8-K have been filed during the quarter 
                     for which this report is filed.


                                        9

<PAGE>



                                   SIGNATURES


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

Dated:     September 21, 1998

                                         WINDSWEPT ENVIRONMENTAL GROUP, INC.



                                         By:/s/ Michael O'Reilly
                                            ----------------------------------
                                                MICHAEL O'REILLY, Chairman and
                                                Chief Executive Officer


                                         By:/s/ Alan W.Schoenbart
                                            ----------------------------------
                                                ALAN W. SCHOENBART,
                                                Chief Financial Officer




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