10-K

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

               |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                     For the fiscal year ended June 30, 2006

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

                           Commission File No. 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)

Registrant's telephone number, including area code: (631) 434-1300

Securities registered pursuant to Section 12 (b) of the Act: None

Securities registered pursuant to Section 12 (g) of the Act:

                    Common Stock, $.0001 par value per share
                                (Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes |_| No |X|

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act. Yes |X| No|_|

Indicate by check mark whether the registrant (1) has 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 periods 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 if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer |_|   Accelerated Filer |_|   Non-Accelerated Filer |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|

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and ask price of such common equity, as of the
last business day of the registrant's most recently completed second fiscal
quarter: $6,358,876



As of September 27, 2006, the issuer had 33,901,215 shares of Common Stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None.


                                       2



Introductory Comment - Forward-Looking Statements

            Statements contained in this Annual Report on Form 10-K include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act 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 our 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 effect 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:

            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 effectively implement and maintain our 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
                  under the "Risk Factors" section of Item 1 and in other
                  sections of this Annual Report on Form 10-K.

            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.


                                       3



                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

General

            We, through our wholly-owned subsidiaries, Trade-Winds Environmental
Restoration Inc. and North Atlantic Laboratories, Inc., 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:

            o     hazardous materials remediation,

            o     microbial remediation, including halting mold, mildew and
                  bacterial growth;

            o     testing, including the gauging and monitoring of moisture and
                  humidity levels;

            o     toxicology;

            o     training, including providing project management and expert
                  consultation to our customers;

            o     wetlands restoration;

            o     wildlife and natural resources rehabilitation;

            o     asbestos and lead abatement;

            o     technical advisory services; and

            o     restoration and site renovation services, including:

                  o     on-location blast freezing;

                  o     off-site freeze drying to restore documents;

                  o     dehumidification services; and

                  o     drying and restoration of structures, furnishings and
                        equipment.

            Our revenues are derived from projects for which we work either on a
time and materials basis or pursuant to a fixed price contract. In fiscal 2006,
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. Since 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.

            With the exception of our efforts relating to Hurricanes Katrina and
Wilma during fiscal 2006, we have principally marketed our services in the
northeastern United States. We obtain our business through client referrals,
cross-selling of services to existing clients, sponsorship of training and
development programs, professional referrals, including from insurance
companies, architectural and engineering firms and construction management firms
for whom we have provided services, competitive bidding and/or advertising. We
have endeavored to stimulate internal growth by expanding services to our
existing customer base and by marketing ourselves to prospective customers as a
multiple-service company with immediate response capabilities. In our marketing
efforts, we emphasize our experience, industry knowledge, safety record,
reputation and competitive bidding. In connection with our response to Hurricane
Katrina, we launched a multimedia 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. At the same time, we
have continued our on-going marketing program, as finances have permitted, in an
effort to establish and maintain business relationships.

            We believe that we have assembled the resources, including key
environmental professionals, construction managers, and specialized equipment to
become a leader in the expanding worldwide emergency services market. We further
believe that few competitors provide the diverse range of services that we
provide on an emergency response basis. We believe that our breadth of services
and our emergency response capability have positioned us for rapid growth in
this expanding market. In the New York metropolitan area, we believe that we are
able to perform all the tasks necessary to rapidly restore a property to
pre-loss conditions, thus minimizing dislocation, downtime and business
interruption. In other geographic areas, we perform all of these services except
reconstruction.


                                       4



            In order to address the needs of our customers, both commercial and
residential, we have dedicated ourselves toward the strategic integration of all
of our services in an effort to provide immediate remedial responses to a wide
variety of natural and man-made disasters, including hurricanes, floods, fire,
smoke, wind, oil and chemical spills, biological hazards, explosions and
radiological releases. As a result, we provide our customers with the capability
to respond to a wide variety of natural or man-made catastrophes. We are capable
of responding in this manner by virtue of our 24-hour call center and teams of
diversely skilled and trained responders. In addition, we have an extensive
array of equipment available to these responders on a 24-hour basis, and this
equipment enables our responders to assess and control damage, safeguard
structures, remediate damage and restore property, irrespective of the type of
emergency, with minimized down time. We also provide our own turn-key
remediation services for all kinds of property damage or hazardous waste
contamination, which enhances our ability to respond to emergencies by virtue of
avoiding the delays associated with sub-contracting these specific services.
When responding to emergencies, we generally:

            o     secure the site and implement loss prevention measures;

            o     determine priorities;

            o     work closely with property owners to formulate remediation and
                  restoration plans that facilitate normal operations as much as
                  possible;

            o     develop a project schedule and cost estimate;

            o     assemble project teams;

            o     deploy necessary equipment and personnel; and

            o     implement remediation and restoration measures.

            We have agreed to become the on-call responder for a growing number
of prospective commercial customers, including one insurance company, that have
entered into emergency response arrangements with us. Pursuant to these
arrangements, we have agreed to provide priority service to these parties to the
extent they select us as their provider, which they are not obligated to do by
the terms of their arrangements. We believe that these arrangements facilitate
our responsiveness and efficiency when we are engaged by such customers because
as part of this process we:

            o     gain knowledge of such prospective customers' businesses and
                  likely needs;

            o     become familiar with such prospective customers' site plans
                  and logistics, such as road access, water and electrical
                  supply, building layout and potential hazards; and

            o     centralize communications between us and such prospective
                  customers' representatives.

Company Background

            We were incorporated under the laws of the state of Delaware on
March 21, 1986 under the name International Bankcard Services Corporation. On
March 19, 1997, we changed our name to our present name. Our principal executive
offices are located at 100 Sweeneydale Avenue, Bay Shore, New York, 11706. Our
telephone number is (631) 434-1300.

            In December 1993, we acquired Trade-Winds, an asbestos abatement and
lead remediation company. On February 24, 1997, we acquired North Atlantic, a
certified environmental training, laboratory testing and consulting company.

            In February 2004, we purchased certain assets of an environmental
remediation business in Florida for $75,000. These assets included office
equipment, a telephone account, telephone and facsimile numbers and the
assumption of an office lease. These assets formed the core of our Florida
office.

            On June 30, 2005, we entered into a financing transaction with
Laurus Master Fund, Ltd. ("Laurus") pursuant to the terms of a securities
purchase agreement, as amended, and related documents. Under the terms of the
financing transaction, we issued to Laurus a secured convertible term note in
the principal amount of $5,000,000 (as amended and restated, the "Note"), a
twenty-year option (the "Option") to purchase 30,395,179 shares of our common
stock at a purchase price of $.0001 per share, and a seven-year common stock
purchase warrant to purchase 13,750,000 shares of our common stock at a purchase
price of $0.10 per share. After consummating the transaction on June 30, 2005,
Laurus subsequently provided additional financing to us on the same terms and
conditions in the aggregate principal amount of $2,350,000.


                                       5



            On September 29, 2006, we entered into an Omnibus Amendment with
Laurus (the "Omnibus Amendment") and amended and restated the Note. The Omnibus
Amendment and Note improved for us certain terms of the original agreements
between the parties and eliminated the authorized share deficiency that caused
the necessity of applying derivative liability accounting, as described in
Management's Discussion and Analysis of Financial Condition and Results of
Operations. In connection with the Omnibus Amendment, we issued Laurus an option
to purchase 11,145,000 shares of Common Stock at a nominal exercise price.

            Concurrently with the Laurus financing, 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., an affiliate of our previous
majority stockholder and senior secured lender, bearing interest at LIBOR plus
1%. In addition, a portion of the proceeds from the Laurus financing were used
to repay amounts owing to Spotless.

Operations

In order to position ourselves into stronger and more profitable markets, we
have evolved from an asbestos abatement contractor to a hazardous materials
clean-up and natural resource restoration firm, and finally, to a full service
emergency response provider. We provide a broad range of services through
vertically integrated businesses in the service areas described below:

            o     Emergency Response and Catastrophe Restoration

            o     Microbial Remediation

            o     Site Restoration

            o     Mold Contamination Remediation

            o     Commercial Drying

            o     Natural Resource/Wetlands Restoration/Wildlife Rehabilitation

            o     Forensic Investigation

            o     Asbestos Abatement

            o     Fire and Flood Restoration

            o     Demolition

            o     Lead Abatement

            o     Underground Storage Tank Removal

            o     Soil Remediation

            o     Oil Spill Response - Land and Marine

            o     Hazardous Waste/Biohazard Clean-up

            o     Chemical Spill Response

            o     Duct Cleaning

            o     Indoor Air Quality Investigation

            o     Environmental and Health and Safety Training

            o     Environmental Testing

            o     Environmental Consulting Services

            We have specially trained emergency response teams that respond to
both hazardous and non-hazardous spills and other emergencies on land and water
on a 24-hour, seven-day-a-week basis. The following examples are types of
emergencies for which we are capable of conducting response and remediation
services: explosions, fires, earthquakes, mudslides, hazardous spills,
transportation catastrophes, storms, hurricanes, tornadoes, floods, and
biological threats.

            In order to provide environmental remediation and other services
necessitated by the aftermath of Hurricane Katrina, in September 2005, we
mobilized over sixty employees to the gulf coast region. Trade-Winds
Environmental Restoration Inc., one of our wholly owned subsidiaries, leased, on
a short-term basis, five premises to serve as a satellite office, regional
command center, training center and housing for our employees in Louisiana. In
view of the substantial completion of our projects in this region, we have
reduced the number of full-time employees in Louisiana to two and are planning
to allow four of these leases to expire.


                                       6



            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.

            Since some of these are relatively new changes, no assurances can be
given that we will be successful in improving our collections and cash flows.
Further, approximately 4% of our current projects are performed under procedures
that predate these improvements.

            We believe that our comprehensive emergency response abilities have
greatly expanded our customer base to include those entities that value
immediate response, enhanced capabilities and customer service. Our customers
have included Fortune 500(TM) companies, insurance companies, industrial
businesses, construction companies, oil companies, utilities, banks, school
districts, state, local and county governments, commercial building owners, real
estate developers and residential real estate owners.

            Health professionals have been aware of the adverse health effects
of exposure to mold for decades, but the issue has gained increased public
awareness in recent years. Studies indicate that 50% of all homes contain mold
and that the dramatic increase in asthma over the past 20 years can be
attributed, at least in part, to mold exposure. Our current focus is on mold
remediation in both commercial and residential structures. Our experience
includes identification and development of remediation plans, detailing methods
and performing microbial (mold, fungus, etc.) abatement in commercial,
residential, educational, medical and industrial facilities. These activities
include decontamination, application of biocides and sealant, removal of
building systems (drywall, carpet, etc.), duct cleaning, and disposal of
building furnishings.

            In order to address the needs of our customers, we have dedicated
ourselves toward the strategic integration of all of our services. As a result,
we provide our customers with the capability to respond to virtually any type of
loss. We believe that we are able to perform all the tasks necessary to rapidly
restore a property to pre-loss conditions, thus minimizing dislocation, downtime
and business interruption.

            From time to time, insurance customers have represented a
substantial portion of our target market: those with recurring needs for
emergency services. During the fiscal years ended June 30, 2006, June 28, 2005,
and June 29, 2004, we recognized net sales to significant customers as set forth
below:

                   June 30,   June 28,   June 29,
Major Customers      2006       2005       2004
- ---------------    --------   --------   --------
   Customer A         28%        19%        4%
   Customer B         12%         4%        0%
   Customer C          4%         4%        0%

            While we intend to increase the amount of work performed for
entities other than these customers, we expect to continue to be dependent on a
few customers and/or the incurrence of large projects. The level of business
with a particular customer in a succeeding period is not expected to be
commensurate with the prior period, principally because of the project nature of
our services. However, we believe that the loss of any single customer would not
have a material adverse effect on our financial condition and results of
operations, unless the revenues generated from any such customer were not
replaced by revenues generated by other customers. See "Risk Factors".


                                       7



            In order to provide emergency response services, it is necessary for
us to employ a professional staff and to maintain an inventory of vehicles,
equipment and supplies. We currently maintain a fleet of 24 spill response
vessels with skimmer, diving and booming capabilities, 98 vehicles (including
vacuum trucks, a life raft, earth moving equipment, supply trucks, drilling
vehicles, campers) and 40 trailers equipped with various capabilities (such as a
mobile wildlife clinic).

Competition

            The environmental and restoration industries in the United States
have developed rapidly since the passage of the Resources Conservation and
Recovery Act of 1976 and are highly competitive. We believe that the industry is
going through a rapid transition resulting from several mergers and
consolidations during the last several years. Several large companies have
emerged from this transition period, but we believe that the industry still has
numerous small and medium-sized companies serving niche markets according to
geography, industry, media (air, water, soil, etc.), and technological
specialization (bioremediations, etc.). We differentiate ourselves from our
competitors by providing some unique services (such as wildlife rehabilitation,
natural resource recovery, water spill clean-up, microbial remediation, forensic
testing, biohazard clean-up) and complementary packages of services. For
example, our oil spill response service line includes our wetlands/natural
resource restoration, laboratory and construction-related services. We further
believe that our turnkey approach to the emergency response business provides a
distinct advantage over our competition.

            We have obtained a WCD Tier 3 marine oil spill response designation
from the United States Coast Guard. This designation, which is the highest
designation that can be obtained, allows us to respond to contamination
containment spills, such as oil tanker disasters.

            We believe that the principal competitive factors applicable to all
areas of our business are price, breadth of services offered, ability to collect
and transport waste products efficiently, reputation for customer service and
dependability, technical proficiency, environmental integrity, operational
experience, quality of working relations with federal, state and local
environmental regulators and proximity to customers and licensed waste disposal
sites. We also believe that we are, and will continue to be, able to compete
favorably on the basis of these factors. However, many of our competitors have
financial and capital equipment resources that are greater than those available
to us. Additionally, at any time and from time to time, we may face competition
from new entrants into the industry. We may also face competition from
technologies that may be introduced in the future, and there can be no assurance
that we will be successful in meeting the challenges that may be created by
competition in the future.

            Our ability to compete effectively depends upon our success in
networking, generating leads and bidding opportunities through our marketing
efforts; the quality, safety and timely performance of our contracts; the
accuracy of our bidding; our ability to hire and train field operations and
supervisory personnel; and our ability to generate sufficient capital to hire
and retain personnel with requisite skills, meet our ongoing obligations, and
promote growth. See "Risk Factors".

Marketing and Sales

            With the exception of our efforts relating to Hurricanes Katrina and
Wilma during fiscal 2006, we have principally marketed our services in the
northeastern and southeastern United States. We obtain our business through
client referrals, cross-selling of services to existing clients, sponsorship of
training and development programs, professional referrals, including from
insurance companies, architectural and engineering firms and construction
management firms for whom we have provided services, competitive bidding and/or
advertising. We have endeavored to stimulate internal growth by expanding
services to our existing customer base and by marketing ourselves to prospective
customers as a multiple-service company with immediate response capabilities. In
our marketing efforts, we emphasize our experience, industry knowledge, safety
record, reputation and competitive bidding. In connection with our response to
Hurricane Katrina, we launched a multimedia 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. At the same time,
we have continued our on-going marketing program, as finances have permitted, in
an effort to establish and maintain business relationships.


                                       8



Government Regulation

            Our operations are subject to extensive regulation supervision and
licensing by the Environmental Protection Agency and various other federal,
state, and local environmental authorities. These regulations directly impact
the demand for the services we offer. We believe that we are in substantial
compliance with all federal, state, and local regulations governing its
business.

            The Resource Conservation and Recovery Act is the principal federal
statue governing hazardous waste generation, treatment, storage, and disposal.
The Resource Conservation and Recovery Act, or the Environmental Protection
Agency-approved state programs, govern any waste handling activities of
substances classified as "hazardous." Moreover, facilities that treat, store or
dispose of hazardous waste must obtain a Resource Conservation and Recovery Act
permit from the Environmental Protection Agency, or equivalent state agency, and
must comply with certain operating, financial responsibility, and site closure
requirements. Wastes are generally hazardous if they either are specifically
included on a list of hazardous waste, or exhibit certain characteristics
defined as hazardous, and are not specifically designated as non-hazardous. In
1984, the Resource Conservation and Recovery Act was amended to substantially
expand its scope by, among other things, providing for the listing of additional
wastes as "hazardous" and also for the regulation of hazardous wastes generated
in lower quantities than had been previously regulated. The amendments imposed
additional restrictions on land disposal of certain hazardous wastes, prescribe
more stringent standards for hazardous waste and underground storage tanks, and
provided for "corrective" action at or near sites of waste management units.
Under the Resource Conservation and Recovery Act, liability and stringent
operating requirements may be imposed on a person who is either a "generator" or
a "transporter" of hazardous waste, or an "owner" or "operator" of a waste
treatment, storage, or disposal facility.

            Underground storage tank legislation, in particular Subtitle I of
the Resource Conservation and Recovery Act, focuses on the regulation of
underground storage tanks in which liquid petroleum or hazardous substances are
stored and provides the regulatory setting for a portion of our business.
Subtitle I of the Resource Conservation and Recovery Act requires owners of all
existing underground tanks to list the age, size, type, location, and use of
each tank with a designated state agency. The Environmental Protection Agency
has published performance standards and financial responsibility requirements
for storage tanks over a five-year period. The Resource Conservation and
Recovery Act and the Environmental Protection Agency regulations also require
that all new tanks be installed in such a manner as to have protection against
spills, overflows, and corrosion. Subtitle I of the Resource Conservation and
Recovery Act provides civil penalties of up to $27,500 per violation for each
day of non-compliance with such tank requirements and $11,000 for each tank for
which notification was not given or was falsified. The Resource Conservation and
Recovery Act also imposes substantial monitoring obligations on parties that
generate, transport, treat, store, or dispose of hazardous waste.

            The Comprehensive Environmental Response Compensation and Liability
Act of 1980 authorizes the Environmental Protection Agency to identify and
clean-up sites where hazardous waste treatment, storage, or disposal has taken
place. The Comprehensive Environmental Response Compensation and Liability Act
also authorizes the Environmental Protection Agency to recover the costs of such
activities, as well as damages to natural resources, from certain classes of
persons specified as liable under the statute. Liability under the Comprehensive
Environmental Response Compensation and Liability Act does not depend upon the
existence or disposal of "hazardous waste" as defined by the Resource
Conservation and Recovery Act, but can be based on the existence of any number
of 700 "hazardous substances" listed by the Environmental Protection Agency,
many of which can be found in household waste. The Comprehensive Environmental
Response Compensation and Liability Act assigns joint and several liability for
cost of clean-up and damages to natural resources to any person who, currently
or at the time of disposal of a hazardous substance, by contract, agreement, or
otherwise, arranged for disposal or treatment, or arranged with a transporter
for transport of hazardous substances owned or possessed by such person for
disposal or treatment, and to any person who accepts hazardous substances for
transport to disposal or treatment facilities or sites from which there is a
release or threatened release of such hazardous substances. Among other things,
the Comprehensive Environmental Response Compensation and Liability Act
authorizes the federal government either to clean up these sites itself or to
order persons responsible for the situation to do so. The Comprehensive
Environmental Response Compensation and Liability Act created a fund, financed
primarily from taxes on oil and certain chemicals, to be used by the federal
government to pay for these clean-up efforts. Where the federal government
expends money for remedial activities, it may seek reimbursement from the
potentially responsible parties. Many states have adopted their own statutes and
regulations to govern investigation and clean up of, and liability for, sites
contaminated with hazardous substances.


                                       9



            In October 1986, the Superfund Amendment and Reauthorization Act was
enacted. The Superfund Amendment and Reauthorization Act increased environmental
remediation activities significantly. The Superfund Amendment and
Reauthorization Act imposed more stringent clean-up standards and accelerated
timetables. The Superfund Amendment and Reauthorization Act also contains
provisions which expanded the Environmental Protection Agency's enforcement
powers and which encourage and facilitate settlements with potentially
responsible parties. We believe that, even apart from funding authorized by the
Superfund Amendment and Reauthorization Act, industry and governmental entities
will continue to try to resolve hazardous waste problems due to their need to
comply with other statutory and regulatory requirements and to avoid liabilities
to private parties.

            The liabilities provided by the Superfund Amendment and
Reauthorization Act could, under certain circumstances, apply to a broad range
of our possible activities, including the generation or transportation of
hazardous substances, release of hazardous substances, designing a clean-up,
removal or remedial plan and failure to achieve required clean-up standards,
leakage of removed wastes while in transit or at the final storage site, and
remedial operations on ground water. Such liabilities can be joint and several
where other parties are involved. The Superfund Amendment and Reauthorization
Act also authorizes the Environmental Protection Agency to impose a lien in
favor of the United States upon all real property subject to, or effected by, a
remedial action for all costs that the party is liable. The Superfund Amendment
and Reauthorization Act provides a responsible party with the right to bring a
contribution action against other responsible parties for their allocable share
of investigative and remedial costs. The Environmental Protection Agency may
also bring suit for treble damages from responsible parties who unreasonably
refuse to voluntarily participate in such a clean up or funding thereof.

            The Oil Pollution Act of 1990, which resulted from the Exxon Valdez
oil spill and the subsequent damage to Prince William Sound, established a new
liability compensation scheme for oil spills from onshore and offshore
facilities and requires all entities engaged in the transport and storage of
petroleum to maintain a written contingency plan to react to such types of
events. Under the contingency plan, the petroleum products storage or
transportation company must retain an oil spill response organization and a
natural resources/wildlife rehabilitator. Oil spill response organizations are
certified by the United States Coast Guard and receive designations based upon
the level of their capabilities. In the event of an incident, the oil response
organization on standby must respond by being on site with containment
capability within two to six hours of notification.

            Asbestos abatement firms are subject to federal, state and local
regulators, including the Occupational Safety and Health Administration, the
Environmental Protection Agency and the Department of Transportation. The
Environmental Protection Agency regulations establish standards for the control
of asbestos fiber and airborne lead emissions into the environment during
removal and demolition projects. The Occupational Safety and Health
Administration regulations establish maximum airborne asbestos fiber, airborne
lead and heavy metal exposure levels applicable to asbestos and demolition
employees and set standards for employee protection during the demolition,
removal or encapsulation of asbestos, as well as storage, transportation and
final disposition of asbestos and demolition debris. The Department of
Transportation regulations, in addition to the regulations imposed by the
Superfund Amendment and Reauthorization Act, cover the management of the
transportation of asbestos and demolition debris and establish certain
certification labeling and packaging requirements. Government regulations have
heightened public awareness of the danger of asbestos contamination, creating
pressure on both private and public building owners to abate this hazard, even
in the absence of specific regulations requiring corrective action.

            In 1992, in an effort to protect families from exposure to the
hazards of lead-based paint, Congress amended the Toxic Substances Control Act
to add Title X, titled "Lead Exposure Reduction." Since May 1993, the
Occupational Safety and Health Administration has had standards for lead
exposure in the construction industry that requires testing before, during and
after construction or renovation. The Occupational Safety and Health
Administration estimates that 1,000,000 workers fall under its Lead Based Paint
Hazard Reduction Act.


                                       10



            Our operations are also subject to other federal laws protecting the
environment, including the Clean Water Act and Toxic Substances Control Act. In
addition, many states also have enacted statutes regulating the handling of
hazardous substances, some of which are broader and more stringent than the
federal laws and regulations.

Compliance/Health and Safety

            We regard compliance with applicable environmental regulations and
the health and safety of our workforce as critical components of our overall
operations. This includes medical surveillance as required by these regulations.
We believe that all requisite health and safety programs are in place and comply
with the regulations in all material respects.

            Among our many services, we provide training programs on
environmental and safety hazards in the environmental, industrial and
construction industry trades. These training programs are designed for use by
supervisors, foremen, project safety and health trainers, construction workers
and laborers. The training program includes the following topics:

            o     sources of exposure;

            o     health effects;

            o     personal protective equipment and the medical surveillance
                  required by the Occupational Safety and Health Administration;
                  and

            o     engineering controls and remediation procedures.

            Our personnel and subcontractors also:

            o     receive general and on-the-job training, which includes health
                  effects, medical and safety procedures and personal protective
                  equipment;

            o     generally have at least three years of on-the-job experience
                  in the field in which they are working; and

            o     generally have at least a high school diploma or a vocational
                  equivalent.

            We designate a site safety officer to each project, and the site
safety officer delegates authority to personnel at each project to facilitate
effective implementation of our policies and procedures, including compliance
with applicable environmental regulations. Any person designated as the site
safety officer is authorized to require that a site-specific health and safety
plan be implemented in compliance with all applicable regulations protecting us
and our personnel. The site-specific health and safety plans are either devised
by our personnel or we adopt the health and safety plans of the customer's
consultant, if we deem it to be satisfactory. In connection with adopting the
health and safety plans of third parties, our health and safety officers review
such plans to confirm compliance with our policies prior to the initiation of
site work. We also encourage our professional staff to attend continuing
professional development programs in an effort to stay informed of regulatory
developments.

Insurance

            We maintain comprehensive general liability insurance on an
occurrence basis, which provides coverage for harm suffered by others for events
occurring while the policy is in force, regardless of when a claim may be made.
Our comprehensive general liability insurance contains a general aggregate limit
of $2,000,000 with a limit of $1,000,000 for any single occurrence. We also
carry comprehensive auto, property, executive and organization liability
insurance, property and worker's compensation and disability coverage with
aggregate liability coverage of $9,000,000. In addition, we carry property
insurance with respect to all of our property, including leased and owned mobile
equipment, papers and records, business interruption coverage and flood
insurance coverage, with varying limits for certain items ranging from $100,000
up to $4,500,000 with a limit of $4,500,000 relating to losses resulting from
any single occurrence on any covered peril.

Surety Bonds

            Certain of our remediation and abatement contracts may from time to
time require performance and payment surety bonds. None of our current projects
require surety bonds. The relationships with various sureties and the issuance
of bonds is dependent on the sureties' willingness to write bonds for the
various types of work that we perform, their assessment of our performance
record and their view of our credit worthiness. Events in the national economy
and insurance industry have adversely effected the major insurance and surety
companies, which has resulted in a tightening of the insurance and bonding
markets increasing costs and decreasing availability of certain types of
insurance and surety capacity.


                                       11



            At present, we believe that surety bonds for a number of our service
lines are available only from a limited number of sureties. As a result of the
foregoing and our inability to obtain sufficient credit enhancements, our
ability to obtain surety and performance bonds has been limited, and this may
have had an adverse impact on our ability to obtain some projects. No assurance
can be given that we will be able to obtain the surety or performance bonds
required for all potential projects. Our continued failure to obtain these bonds
could materially and adversely effect certain components of our operations.

Employees/Technical Staff

            As of September 30, 2006, we employed a core group of approximately
71 persons, including executive officers, project managers, specialists,
supervisors, field staff, marketing and clerical personnel. We attempt to
provide year-round employment for our core field staff by cross training. We
promote qualified field workers to supervisory positions and supervisors into
production management and other staff positions, when applicable.

            We employ laborers for field operations based upon our current
workload. Approximately 42 field staff and supervisors are employed by us on a
steady basis, with additional labor hired on an as-needed basis to supplement
our work force. We utilize several local unions to supply labor for projects
that require it. We have never had a work stoppage, and we believe that we
maintain good relations with our employees.

Permits and Licenses

            The Federal Government and the states in the areas in which we
operate require that mold, asbestos and lead abatement firms be licensed.
Licensing generally requires that workers and supervisors receive training from
state certified organizations and pass required tests.

            While we believe that we are in substantial compliance with all of
our licensing and permit requirements, and we, or our personnel, maintain the
required licenses and permits in all locations for which we conduct any
applicable operations, we may need additional licenses or permits in areas into
which we plan to expand our operations. In addition, we may be required to
obtain additional permits or licenses if new environmental legislation or
regulations are enacted or existing legislation or regulations are amended or
enforced differently than in the past. There can be no assurance that we will be
able to continue to comply with all of the permit and licensing requirements
applicable to our business. We believe that the types of licenses we possess
have reciprocity in most of the states due to their adherence to Federal
standards, but no assurances can be given in that regard.

Patents, Trademarks, Licenses and Copyrights

            We do not own any patents or registered trademarks or trade names.
We rely on common law trademark protection for certain of our trade names and
service marks. We have copyrights for certain of our promotional and employee
training materials. We do not believe that intellectual property is a
competitive factor in our industry.

Geographic Information

            Since all of our operations are located in the United States of
America, our geographic revenue information is based on the country in which the
revenues originate. The following is a table that shows the origin of revenues
for our fiscal years ended June 30, 2006, June 28, 2005, and June 29, 2004:

                                     Geographic Information
                   ------------------------------------------------------
                   United States   Non-United States   Consolidated Total
                   -------------   -----------------   ------------------
Fiscal Year 2006    $32,644,415         $     0           $32,644,415
Fiscal Year 2005    $20,200,410         $     0           $20,200,410
Fiscal Year 2004    $19,143,717         $23,036           $19,166,753


                                       12



Backlog

            We do not have any measurable backlog. In fiscal 2005, our audit
committee directed management to implement a system by which backlog can be
reliably measured. Management is in the process of formulating how best to
implement such a system.

Risk Factors

            Our operations, as well as an investment in our securities, involve
numerous risks and uncertainties. The reader should carefully consider the risk
factors discussed below and elsewhere in this Annual Report on Form 10-K before
making any investment decision involving our securities.

Factors Affecting Future Operating Results

We have experienced significant operating losses and may incur losses in the
future.

            Future losses could adversely effect the market value of our common
stock. Although we generated net income of $53,066 in our fiscal year ended June
28, 2005, we incurred net losses of ($20,517,190), ($3,535,344) and ($469,004)
in our fiscal years ended June 30, 2006, June 29, 2004 and July 1, 2003,
respectively. As of June 30, 2006, we had an accumulated deficit of
($55,181,891). In fiscal 2006, although we had operating income of $5,301,419,
we incurred a mark-to-market loss on embedded derivative liabilities of
$19,373,659 and non-cash interest charges of $4,733,847. As a result of the
agreements we reached with Laurus on September 29, 2006, we believe that we will
no longer have to apply derivative accounting and that on our September 30,
2006, applicable derivative liability balances will be credited to equity.
Nonetheless, our results from operations will still be adversely effected in
future periods by significant interest expense changes resulting from the
accounting for the Laurus financing, including from direct interest expense on
the Note, amortization of the discount on the Note and amortization of deferred
financing costs. Further, due to the lack of hurricane related work in the
fourth quarter of fiscal 2006 and to date in fiscal 2007 as compared to the
significant revenues in the first half of fiscal 2006 derived from work related
to Hurricanes Katrina and Wilma, we generated net revenues of $2,522,188 for the
fourth quarter of fiscal 2006 and expect unfavorable comparisons with respect to
operating income in the early part of fiscal 2007 as compared to the comparable
period for fiscal 2006. There can be no assurance that we will generate profits
in the future.

If our common stock does not trade in sufficient volume at high enough prices,
or if Laurus is not willing or able to sufficiently reduce its ownership of our
common stock, we would be required to repay all or part of our senior secured
convertible debt to Laurus in cash, which could adversely effect our cash flow
and liquidity.

            Under the terms of the Note, in the principal amount of $5,942,175
at October 19, 2006, we are required to make monthly payments on the first day
of each month. Commencing July 1, 2006 and through December 31, 2006, we are
obligated to make interest only payments, and commencing January 1, 2007, we are
obligated to make payments to Laurus in the amount of $100,000, applied first to
interest and then to principal. In the event that at any time we have a cash and
cash equivalents balance in excess of $1,000,000, 50% of any cash received in
excess of such amount is required to be used to pay down principal on the Note.
The remaining unpaid principal balance is due on June 30, 2009. We are required
to pay such amounts in shares of our common stock up to a maximum aggregate
dollar principal amount of $1,942,175 should all of the following conditions be
satisfied:

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


                                       13



            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 day of the month
                  for which payment is due;

            o     the common stock so issuable 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 exceed 9.99%; and

            o     we are not in default of the Note.

            If we are required to pay Laurus in shares of our common stock, the
issuance of such shares could have a substantial dilutive effect on our common
stock. If any of these conditions are not satisfied, we will be required to make
payments in cash. Should we be required to pay cash, this may have an adverse
effect on our cash flow and liquidity.

We are dependent on the incurrence of large projects.

            Due to the nature of the services we offer, we generate most of our
revenues from new customers. We cannot anticipate whether we will be able to
replace our revenues with revenues from new projects in future periods. During
the fiscal year ended June 30, 2006, our projects in the areas damaged by
Hurricanes Katrina and Wilma accounted for 56% of our revenues during such year.
We had substantially completed our work in these areas by the third quarter of
fiscal 2006. Reflecting our emphasis on hurricane-related work, our revenues
during fiscal 2006 decreased from $17,714,342 in the second quarter to
$7,213,546 in the third quarter to $2,552,188 in the fourth quarter. We
currently expect unfavorable revenue comparisons for the early part of fiscal
2007 as compared to the comparable periods during fiscal 2006. We are not sure
when and if we will be able to find other similar favorable business.

We could develop concentrations of credit risk.

            We often contract with a limited number of customers. A small number
of customers may therefore be responsible for a substantial portion of our
revenues and accounts receivable at any time. While our management assesses the
credit risk associated with each prospective customer prior to the execution of
a definitive contract, no assurances can be given that such assessments will be
correct or that we will not incur substantial, uncollectible accounts
receivable.

We could be harmed by our slow collections of accounts receivable.

            It typically takes us up to a year to collect on our accounts
receivables. Although we have implemented new measures in an effort to improve
our collections, as described under "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources,"
no assurances can be given that they will be successful in improving our
collections and cash flows. If our collections prove to be insufficient for our
cash flow needs, this may have an adverse effect on our business and operations.

We must correctly manage growth.

            Our potential growth in the future, including growth relating to
future disasters such as Hurricanes Katrina and Wilma, may place significant
demands on our operational, managerial and financial resources. There can be no
assurance that our current management, personnel and systems will be adequate to
address this or any other future expansion of our business. In such event, any
inability to manage our growth or operations effectively could have a material
adverse effect on our business, financial condition and results of operations.

Our ability to service our debt and other financing transactions depends on many
factors beyond our control.

            Our ability to service our debt and meet our other financial
obligations as they come due is dependent on our future financial and operating
performance. This performance is subject to various factors, including factors
beyond our control such as changes in the general economy, our industry or the
environmental and other laws pertaining to the services that we provide, and
changes in interest rates, energy and other costs. Although we believe that we
have sufficient resources to service our Note to Laurus in the current principal
amount of $5,942,175 and our other obligations, we cannot ensure that we will
have the ability to service the Note in the future.


                                       14



            If our cash flow and capital resources are insufficient to enable us
to service the Note we issued to Laurus, and we are unable to obtain alternative
financing, we could be forced to:

            o     reduce or delay capital expenditures;

            o     sell some or all of our assets; or

            o     limit or discontinue, temporarily or permanently, our
                  operations or business.

An event of default under the Laurus Note could result in a material adverse
effect on our business, operating results or financial condition.

            Laurus holds a Note of ours with a current principal amount of
$5,942,175. Events of default under the Note include:

            o     a failure to pay monthly interest and principal payments when
                  due or prior to the expiration of any applicable grace period;

            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 unvacated, unbonded or unstayed 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,
                  provided 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;

            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.

            If we default, the interest rate charged with respect to the Note
will be increased by 2% per month until the default is cured. In addition, if
the holder of the Note demands payment of all amounts due and payable in
connection with a default, we will be required to pay 110% of the outstanding
principal amount of the Note and any accrued and unpaid interest. The cash
required to pay such amounts will most likely come out of working capital,
unless we are able to arrange alternative financing. Since we rely on our
working capital for our day-to-day operations, such a default on the Note could
have a material adverse effect on our business, operating results, or financial
condition. To such extent that we are forced to restructure, file for
bankruptcy, sell assets or cease operations, your investment dollars would be at
significant risk.

We cannot give any assurance that we will be able to secure additional financing
to meet our future capital needs.

            Our long-term capital requirements will depend upon many factors,
including, but not limited to, cash flow from operations, our level of capital
expenditures, our working capital requirements and the growth of our business.
Historically, we have financed our operations primarily through issuances of
debt and equity securities, through short-term borrowings from our former
majority stockholder, and through cash generated from operations.


                                       15



            We may need to incur additional indebtedness or raise additional
capital to fund the capital needs of our operations or related to growth. There
are no assurances that Laurus will provide financing in the future. In addition,
our ability to borrow additional funds from lenders other than Laurus may be
limited in light of:

            o     the senior security interest that Laurus holds securing its
                  Note from us; and

            o     the subordinated security interest that Spotless holds
                  securing its $500,000 note.

            To the extent additional debt financing cannot be raised on
acceptable terms, we may need to raise additional funds through public or
private equity financings. No assurance can be given that additional debt or
equity financing will be available or that, if either or such financing is
available, the terms of such financing will be favorable to us or our
stockholders without substantial dilution of their ownership and rights. If
adequate funds are not available, we may be required to curtail our future
operations significantly or to forego expansion opportunities.

Due to the nature of our business and the intense regulatory climate in which we
operate, our services are subject to extensive federal, state and local laws and
regulations that are constantly changing.

            These regulations impose stringent guidelines on companies that
handle hazardous materials as well as other companies involved in various
aspects of the environmental remediation services industry. Failure to comply
with applicable federal, state and local regulations could result in substantial
costs to us, the imposition of penalties or in claims not covered by insurance,
any of which could have a material adverse effect on our business.

            In addition to the burdens imposed on operations by various
environmental regulations, federal law imposes strict liability upon present and
former owner and operators of facilities that release hazardous substances into
the environment and the generators and transporters of such substances, as well
as persons arranging for the disposal of such substances. All such persons may
be liable for the costs of waste site investigation, waste site clean up,
natural resource damages and related penalties and fines. Such costs can be
substantial.

Environmental remediation operations may expose our employees and others to
dangerous and potentially toxic quantities of hazardous products.

            Toxic quantities of hazardous products can cause cancer and other
debilitating diseases. Although we take extensive precautions to minimize worker
exposure and we have not experienced any such claims from workers or other
persons, there can be no assurance that, in the future, we will avoid liability
to persons who contract diseases that may be related to such exposure. Such
persons potentially include employees, persons occupying or visiting facilities
in which contaminants are being, or have been, removed or stored, persons in
surrounding areas, and persons engaged in the transportation and disposal of
waste material. In addition, we are subject to general risks inherent in the
construction industry. We may also be exposed to liability from the acts of our
subcontractors or other contractors on a work site.

The failure to obtain and maintain required governmental licenses, permits and
approvals could have a substantial adverse effect on our operations.

            The remediation industry is highly regulated. We are required to
have federal, state and local governmental licenses, permits and approvals for
our facilities and services. There can be no assurance as to the successful
outcome of any pending application or demonstration testing for any such
license, permit or approval. In addition, our existing licenses, permits and
approvals are subject to revocation or modification under a variety of
circumstances. Failure to obtain timely, or to comply with the conditions of,
applicable licenses, permits or approvals could adversely effect our business,
financial condition and results of operations. As we expand our business and as
new procedures and technologies are introduced, we may be required to obtain
additional licenses, permits or approvals. We may be required to obtain
additional licenses, permits or approvals if new environmental legislation or
regulations are enacted or promulgated or existing legislation or regulations
are amended, reinterpreted or enforced differently than in the past. Any new
requirements that raise compliance standards may require us to modify our
procedures and technologies to conform to more stringent regulatory
requirements. There can be no assurance that we will be able to continue to
comply with all of the environmental and other regulatory requirements
applicable to our business.


                                       16



A substantial portion of our revenues are generated as a result of requirements
arising under federal and state laws, regulations and programs related to
protection of the environment.

            Environmental laws and regulations are, and will continue to be, a
principal factor effecting demand for our services. The level of enforcement
activities by federal, state and local environmental protection agencies and
changes in such laws and regulations also effect the demand for such services.
If the requirements of compliance with environmental laws and regulations were
to be modified in the future, the demand for our services, and our business,
financial condition and results of operations, could be materially adversely
effected.

We are dependent on the successful developmental and commercial acceptance of
our procedures and technologies.

            We are constantly developing, refining and implementing our
procedures and technologies for environmental remediation. Our operations and
future growth are dependent, in part, upon the acceptance and implementation of
these procedures and technologies. There can be no assurance that successful
development of future procedures and technologies will occur or, even if
successfully developed, that we will be able to successfully commercialize such
procedures and technologies. The successful commercialization of our procedures
and technologies may depend in part on ongoing comparisons with other competing
procedures and technologies and more traditional treatment, storage and disposal
alternatives, as well as the continuing high cost and limited availability of
commercial disposal options. There can be no assurance that our procedures and
technologies will prove to be commercially viable or cost-effective or, if
commercially viable and cost-effective, that we will be successful in timely
securing the requisite regulatory licenses, permits and approvals for any such
procedures or technologies or that such procedures or technologies will be
selected for use in future projects. Our inability to develop, commercialize or
secure the requisite licenses, permits and approvals for our procedures and
technologies on a timely basis could have a material adverse effect on our
business, financial condition and results of operations.

We are subject to quarterly fluctuations in operating results.

            Our revenue is dependent on our projects and the timing and
performance requirements of each project. Our revenue is also effected by the
timing of our customers' remediation activities and need for our services. Due
to this variation in demand, our quarterly results may fluctuate. Accordingly,
specific quarterly or interim results should not be considered indicative of
results to be expected for any future quarter or for the full year. It is
possible that in future quarters, our operating results will not meet the
expectations of investors. In such event, the price of our common stock could be
materially adversely effected.

We increasingly seek large, multi-year contracts.

            We are increasingly pursuing large, multi-year contracts as a method
of achieving more predictable revenues, more consistent utilization of equipment
and personnel, and greater leverage of sales and marketing costs. These larger
projects pose significant risks if actual costs are higher than those estimated
at the time of the placement of any fixed-price bids. A loss on one or more of
such larger contracts could have a material adverse effect on our business,
financial condition and results of operations. In addition, the failure to
obtain, or a delay in obtaining, targeted large, multi-year contracts could
result in significantly less revenue for us than anticipated.

Our operations are effected by weather conditions.

            While we provide our services on a year-round basis, the services we
perform outdoors or outside of a sealed environment may be adversely effected by
inclement weather conditions. 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 effect our
operations and financial results and may adversely effect the performance of
other projects due to scheduling and staffing conflicts.


                                       17



Our ability to perform under our contracts and to successfully bid for future
contracts is dependent upon the consistent performance of equipment and
facilities in conformity with safety and other requirements of the licenses and
permits under which we operate.

            Our equipment and facilities are subject to frequent routine
inspections by the regulatory authorities issuing such licenses and permits. In
the event any of our key equipment and facilities were to be shut down for any
appreciable period of time, either due to equipment breakdown or as the result
of regulatory action in response to an alleged safety or other violation of the
terms of the licenses under which we operate, our business, financial condition
and results of operations could be materially adversely effected.

The environmental remediation industry is highly competitive and we face
substantial competition from other companies.

            Many of our competitors have greater financial, managerial,
technical and marketing resources than we do. To the extent that competitors
possess or develop superior or more cost effective environmental remediation
solutions or field service capabilities, or otherwise possess or acquire
competitive advantages compared to us, our ability to compete effectively could
be materially adversely effected.

Our future success depends on our continuing ability to attract, retain and
motivate highly qualified managerial, technical and marketing personnel.

            We are highly dependent upon the continuing contributions of key
managerial, technical and marketing personnel. Our business necessitates that we
employ highly specialized technical, managerial and marketing employees who have
industry specific knowledge. Our employees may voluntarily terminate their
employment with us at any time, and competition for qualified technical
personnel experienced in the environmental remediation industry is intense,
particularly in light of the demand generated by recent hurricanes. The loss of
the services of any of our key managerial, technical or marketing personnel,
especially Michael O'Reilly, our chief executive officer, could materially
adversely effect our business, financial condition and results of operations.

In order to successfully bid on and secure contracts to perform environmental
remediation services of the nature offered by us to our customers, we sometimes
must provide surety bonds with respect to each prospective and, upon successful
bid, actual projects.

            The number and size of contracts that we can perform from time to
time is to a certain extent dependent upon our ability to obtain bonding. This
ability to obtain bonding is dependent, in material part, upon our net worth and
working capital. Our ability to obtain bonding has been limited in recent years.
There can be no assurance that we will have adequate bonding capacity to bid on
all of the projects which we would otherwise bid upon were we to have such
bonding capacity or that we will in fact be successful in obtaining additional
contracts on which we may bid, which could have a material adverse effect on our
results of operations. None of our current projects require surety bonding.

We have identified issues relating to our internal controls over financial
reporting that may prevent us from being able to accurately report our financial
results, which could harm our business and operating results.

            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 end dates in order to enhance the accurate and timely
                  processing of our cash receipts for each quarterly period. 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.


                                       18



            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.

            Any delay or failure to implement these measures, or difficulties
encountered in their implementation or operation, could harm our operating
results, cause us to fail to meet our financial reporting obligations, or
prevent us from providing reliable and accurate financial reports. Disclosure of
failure to remediate these problems in a timely fashion could cause investors to
lose confidence in our reported financial information, which could have a
negative effect on the trading price of our stock and our access to capital.

Factors Affecting Our Securities

One major stockholder maintains the ability to control our operations.

            Currently, Michael O'Reilly, our chief executive officer and
president, owns an aggregate of 15,647,297 shares of our common stock and holds
approximately 46.2% of our voting power. In addition, Mr. O'Reilly currently
owns options which are exercisable for 24,306,273 shares of our common stock.
Should Mr. O'Reilly exercise his options to the fullest extent possible, he
would own 39,953,570 shares of our common stock and hold approximately 68.6% of
our voting power. Accordingly, Mr. O'Reilly may be able to control the Board of
Directors and thereby determine the corporate policy and the direction of our
operations. Mr. O'Reilly entered into a lock-up agreement with Laurus that
prohibits his disposition of his shares of our common stock and any and all
related derivative securities until the earlier of (a) the repayment in full of
the Laurus Note or (b) June 30, 2010.

Conversion or exercise of our outstanding convertible or other derivative
securities could substantially dilute your investment and the existence of our
convertible and derivative securities could negatively effect the price of our
common stock.

            As required by Laurus in connection with consummating our amended
financing transaction, we have issued to Laurus, subject to a beneficial
ownership limitation of 9.99% :

            o     the Note, which is convertible at $.09 per share into,
                  approximately 21,579,722 shares of our common stock;

            o     options exercisable at $.0001 per share currently for
                  28,895,179 and 11,145,000 shares. Laurus previously acquired
                  1,500,000 shares in connection with its partial exercise of
                  one of the options; and

            o     a warrant exercisable at $.10 per share for 13,750,000 shares.

            We also have other outstanding options to purchase up to 26,806,273
shares of our common stock, which include 24,306,273 shares issuable upon
exercise of options granted to our president and chief executive officer
exercisable at $.01 per share with respect to 2,000,000 shares, at $.07904 per
share with respect to 5,486,309 shares and at $.09 per share with respect to
15,469,964 shares.

            The issuance of any of these shares will dilute the percentage
ownership of our current shareholders. The existence of these convertible and
derivative securities could negatively effect the price of our common stock.

Future sales of substantial amounts of our common stock in the public market
could have an adverse effect on the market price of our common stock.

            As of June 30, 2006, we had 33,571,215 shares of common stock
outstanding. The registration statement that we expect to file will register for
resale 5,395,061 shares, or approximately 13.7% of our issued and outstanding
common stock inclusive of such registered shares. In addition, Laurus may demand
that we file additional registration statements upon 45 days notice to register
shares held by them in excess of the 5,395,061 shares to be registered in our
next registration statement.

            We are unable to predict the potential effect that sales into the
market of these shares may have on the then prevailing market price of our
common stock. It is likely that market sales of these shares (or the potential
for these sales even if they do not actually occur) may have the effect of
depressing the market price of our common stock. As a result, the potential
resale and possible fluctuations in trading volume of such a substantial amount
of our stock may effect our share price negatively.


                                       19



We are precluded from paying and do not anticipate paying any cash dividends to
our common stockholders for the foreseeable future.

            We are prohibited from declaring or paying any dividends to our
common stockholders without Laurus' prior written consent for so long as at
least twenty-five percent of the original principal amount of the Note is
outstanding. Further, we expect that future earnings, if any, will be used to
finance the working capital, debt service growth and the development of our
business and do not expect to declare or pay any cash dividends on our common
stock in the foreseeable future. The payment of any future cash dividends by us
will be dependent upon our earnings, the stability thereof, our financial
requirements and other relevant factors. In addition, prior to paying any
dividends on our common stock, we are required to pay any accrued and unpaid
quarterly dividends on our series A convertible preferred stock.

Our securities have been thinly traded on the Over-the-Counter Bulletin Board,
which may not provide liquidity for our investors.

            Our securities are quoted on the Over-the-Counter Bulletin Board.
The Over-the-Counter Bulletin Board is an inter-dealer, over-the-counter market
that provides significantly less liquidity than the NASDAQ Stock Market or
national or regional securities exchanges. Securities traded on the
Over-the-Counter Bulletin Board are usually thinly traded, highly volatile, have
fewer market makers and are not followed by analysts. The Securities and
Exchange Commission's order handling rules, which apply to NASDAQ-listed
securities, do not apply to securities quoted on the Over-the-Counter Bulletin
Board. Quotes for stocks included on the Over-the-Counter Bulletin Board are not
listed in newspapers. Therefore, prices for securities traded solely on the
Over-the-Counter Bulletin Board may be difficult to obtain and holders of our
securities may be unable to resell their securities at or near their original
acquisition price, or at any price.

If we fail to remain current on our reporting requirements or if we do not
timely make all necessary filings, we could be removed from the Over-the-Counter
Bulletin Board, which would limit the ability of broker-dealers to sell our
securities and the ability of our stockholders to sell their securities in the
secondary market.

            Companies trading on the Over-the-Counter Bulletin Board, such as
us, must be reporting issuers under Section 12 of the Securities Exchange Act of
1934, as amended, and must be current in their reports under Section 13 in order
to maintain price quotation privileges on the Over-the-Counter Bulletin Board.
If we fail to remain current on our reporting requirements or we do not timely
make all necessary filings, our common stock could be delisted from the OTC
Bulletin Board. If this were to happen, it could severely limit the ability of
broker-dealers to sell our securities, and the ability of stockholders to sell
their securities in the secondary market may be severely affected.

The market price of our common stock has fluctuated considerably and will
probably continue to do so.

            The stock markets have experienced price and volume fluctuations,
and the market price of our common stock has historically been volatile. The
market price of our common stock could be subject to wide fluctuations in the
future as well in response to a variety of events or factors, some of which may
be beyond our control. These could include, without limitation:

            o     the occurrence of catastrophes requiring remediation;

            o     our ability to obtain large projects;

            o     changing policies and regulations of the federal state, and
                  local governments;

            o     fluctuations in our financial results;

            o     liquidity of the market for our securities;

            o     future announcements of new competing technologies and
                  procedures;


                                       20



            o     public perception of our entry into new markets; and

            o     general conditions in our industry and the economy.

Our charter contains authorized, unissued preferred stock that may inhibit a
change of control under circumstances that could otherwise give our stockholders
the opportunity to realize a premium over prevailing market prices of our
securities.

            Our restated certificate of incorporation, as amended, and by-laws
contain provisions that could make it more difficult for a third party to
acquire us under circumstances that could give stockholders an opportunity to
realize a premium over then-prevailing market prices of our securities. Our
certificate of incorporation authorizes our board to issue preferred stock
without stockholder approval and upon terms as our board may determine. The
rights of holders of our common stock are subject to, and may be adversely
effected by, the rights of future holders of preferred stock. Section 203 of the
Delaware General Corporation Law makes it more difficult for an "interested
stockholder" (generally, a 15% stockholder) to effect various business
combinations with a corporation for a three-year period after the stockholder
becomes an "interested stockholder." In general, these provisions may discourage
a third party from attempting to acquire us and, therefore, may inhibit a change
of control.

ITEM 2.  DESCRIPTION OF PROPERTY

            We hold a lease expiring in April 2007 for our 50,000 square foot
facility located at 100 Sweeneydale Avenue, Bay Shore, New York 11706. The lease
provides for a current annual rent of $380,852 and is subject to a 4% annual
escalation. This facility currently houses all our operations, with the
exception of satellite offices in Florida and Louisiana.

            On September 8, 2006, we signed a lease effective September 15, 2006
for a 68,000 square foot building for our new offices and warehouse to replace
our current leased facilities. The original term of this lease is for seven
years and contains renewal provisions for three (3) five-year extensions at our
option. The initial rent during the first year ranges from $17,000 per month to
$36,000 per month with an increase of 3% per annum in years 3 through 7. The
lease is a net lease and we are responsible for any increases in real estate
taxes and building insurance over the base year 2006-2007. The cost of the
initial seven year commitment is approximately $3,400,000.

            In September 2005, Trade-Winds leased three premises to serve as a
satellite office, regional command center, training center and housing for our
employees in Louisiana. On September 1, 2005, Trade-Winds made arrangements to
lease a house located in Baton Rouge, Louisiana for $1,000 per month for six
months. On September 2, 2005, Trade Winds entered into a one-year lease
agreement for another property located in Baton Rouge, Louisiana for $2,000 per
month. On August 20, 2006, this lease was extended another year under the same
terms with an option for an additional year. Pursuant to the terms of the lease,
the lessor shall give Trade-Winds first option to purchase the land. On
September 8, 2005, Trade-Winds entered into a one-year lease agreement for
property located in Convent, Louisiana for $39,500 per month, which was not
subsequently renewed.

            We hold a lease expiring in 2007 for our satellite office in
Tamarac, Florida, which enables us to procure projects in that state. The lease
provides for a current annual rent of $77,272.

            We consider our facilities sufficient for our present use and our
anticipated future operations, and we believe that these properties are
adequately covered by insurance.

ITEM 3.  LEGAL PROCEEDINGS

            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 we understood to exist with the customer. The
additional costs incurred to remove this matter were approximately $1,600,000.
We have 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 our claim for the
additional work for which we billed the customer. The project has been
substantially completed and the customer has refused to acknowledge its
liability for these additional charges. On October 22, 2004, we commenced an
action against the utility 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 utility filed an answer, denying our claims. The case is currently in
pre-trial discovery.


                                       21



            On August 5, 2004, we commenced an action against the New York City
Economic Development Corporation 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 in unspecified amounts seeking liquidated
damages, reimbursement for consultant's fees, and breach of contract. The case
is currently in pre-trial discovery.

            We are a plaintiff in approximately 20 lawsuits, including those
described above, claiming an aggregate of approximately $8,500,000 pursuant to
which we are seeking to collect amounts we believe are owed to us by customers,
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 party to litigation matters and claims that are in the
ordinary course of our operations, and while the results of such litigation and
claims cannot be predicted with certainty, we believe that the final outcome of
such matters will not have a material adverse effect on our financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

            None.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

            Since October 22, 1996, our common stock has been traded on the OTC
Electronic Bulletin Board of the NASD, under the symbol "WEGI.OB." The following
table sets forth the range of quarterly high and low bid prices, for our fiscal
years ended June 30, 2006 and June 28, 2005, as provided by Yahoo Finance
Historical Price Quote. These over-the-market quotations represent inter-dealer
prices, do not reflect retail markup, markdown, or commission and may not
represent actual transactions.

                                   Price Range of Common Stock
                                   ---------------------------
FISCAL YEAR ENDED JUNE 28, 2005

Quarter Ended                               HIGH    LOW
- -------------                               ----    ---
September 28, 2004                          $.06   $.04
December 28, 2004                           $.07   $.03
March 29, 2005                              $.12   $.04
June 28, 2005                               $.09   $.06

FISCAL YEAR ENDED JUNE 30, 2006

Quarter Ended                               HIGH    LOW
- -------------                               ----    ---
September 27, 2005                          $.79   $.05
December 27, 2005                           $.45   $.10
March 28, 2006                              $.22   $.09
June 30, 2006                               $.47   $.13


                                       22



            As of September 30, 2006, there were approximately 739 holders of
record of our common stock.

            Pursuant to the Securities Purchase Agreement with Laurus, as
amended, we are prohibited from declaring or paying any dividends to our common
stockholders without receiving Laurus' prior written consent for so long as at
least twenty-five percent ($1,837,500) of the original principal amount of the
Note ($7,350,000) is outstanding. Further, we expect that future earnings, if
any, will be used to finance the working capital, debt service, growth and
development of our business and do not expect to declare or pay any cash
dividends on our common stock in the foreseeable future. The payment of any
future cash dividends by us will be dependent upon our earnings, our financial
requirements and other relevant factors. In addition, prior to paying any
dividends on our common stock, we are required to pay quarterly dividends on our
series A convertible preferred stock. Upon conversion of the series A
convertible preferred stock into common stock, dividends on the series A
convertible preferred stock shall no longer accrue and all accrued and unpaid
dividends, and any related accrued and unpaid interest, as of the date of such
conversion, shall be paid in cash. However, our series A convertible preferred
stock stockholders have agreed to:

            o     postpone their right, upon six months' notice after February
                  2007, to require us to redeem their series A convertible
                  preferred stock, until the earlier of six months after the
                  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 the 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 secured
                  convertible term note that we have issued to Laurus.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

            The selected consolidated financial data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with our audited financial statements
and the notes thereto included elsewhere herein. See Note 2 of the financial
statements with respect to the restatements.



                                              Fiscal Year    Fiscal Year    Fiscal Year    Fiscal Year   Fiscal Year
                                                 Ended          Ended          Ended         Ended          Ended
                                             June 30, 2006  June 28, 2005  June 29, 2004  July 1, 2003  July 2, 2002
                                             -------------  -------------  -------------  ------------  ------------
                                                            (As restated)  (As restated)
                                                                                          
Consolidated Operations Data:
Revenues                                     $ 32,644,415    $20,640,410   $ 19,166,753   $17,831,189    $32,903,740
Gross Profit (loss)                            13,766,458      5,463,675      1,724,694     3,516,670     12,148,063
Income (loss) from operations                   5,301,419        402,614    (3,275,204)    (1,493,641)     6,245,857
Mark-to- market loss on embedded
  derivatives                                  19,373,659             --             --            --             --
Net (loss) income                             (20,517,190)        53,066     (3,535,334)     (469,004)     3,494,867
Net (loss) income per common share-basic     $      (0.62)   $      0.00      $    (.05)  $     (0.01)   $      0.05
Net (loss) income per common share-diluted   $      (0.62)   $      0.00   $       (.05)  $     (0.01)   $      0.04
Weighted average common shares
  outstanding:
    Basic                                      33,343,615     77,936,358     77,936,358    77,936,358     63,300,953
    Diluted                                    33,343,615     77,936,358     77,936,358    77,936,358     85,455,580
Consolidated Balance Sheet Data:
Total assets                                 $ 17,794,156    $10,056,538   $ 11,331,165   $11,054,263    $10,212,538
Total current assets                           12,334,398      7,491,847      8,375,045     8,458,701      8,861,054
Total current liabilities                      32,555,260      9,195,938     10,479,016     6,241,411      4,534,581
Total long-term debt                              688,245        197,400        340,104       338,848         63,703
Redeemable convertible preferred stock          1,300,000      1,300,000      1,300,000     1,300,000      1,300,000
Stockholders' (deficit) equity               $(16,749,349)   $  (712,889)  $   (787,955)  $ 2,825,379    $ 3,372,383



                                       23



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

            The following discussion and analysis gives effect to the
restatement discussed in Note 2 of the financial statements.

            The discussion and analysis provides information that we believe is
relevant to an assessment and understanding of our results of operations and
financial condition. This discussion and analysis information should be read in
conjunction with the accompanying consolidated financial statements and notes
thereto.

            This discussion contains forward-looking statements that are subject
to a number of known and unknown risks, that, in addition to general, economic,
competitive and other business conditions, could cause actual results,
performance and achievements to differ materially from those described or
implied in the forward-looking statements, as more fully discussed in the
"Forward-Looking Statements" and "Risk Factors" sections above.

            We are subject to significant external factors that could
significantly impact our business. These external factors could cause future
results to differ materially from historical trends. These external factors are
more fully discussed in the "Risk Factors" section above.

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 provided in the aftermath of Hurricanes Katrina and Wilma. In
fiscal 2006 and fiscal 2005, 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. Since 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, professional fees, salaries, rent, marketing and consulting.

            We have encountered difficulty with cash collections and slow cash
flow primarily due 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.


                                       24



            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.

            Since 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 4% 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 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 funding to us. Currently, we have no credit facility
for additional borrowing.

            As of September 30, 2006, the principal amount of the Laurus note
outstanding equaled $5,942,175. We are obligated to make interest only payments
to Laurus on the first day of each month through December 31, 2006, and
thereafter are obligated to pay $100,000 per month on the first day of each
month, applied first to interest and then principal.

            Management believes that we will be engaged to perform substantial
additional projects in the United States 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.

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 years ended June 30, 2006, June 28, 2005, and June 29,
2004, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
consolidated financial statements requires management to make estimates and
judgments that effect 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 derivatives liabilities, stock based transactions,
contracts, allowance for doubtful accounts and the valuation allowance related
to deferred tax assets.

            Embedded Derivative Liabilities- In order to calculate the
derivative liabilities, we have projected the following factors over various
periods through the original June 30, 2008 maturity date of the Laurus 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 period projected at $0.0899


                                       25



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 as 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.

            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 required by SFAS No.123R. The accompanying financial statements reflect
the adoption of this pronouncement as of the beginning of fiscal 2006, as
required. Prior to the adoption of SFAS No.123R, we disclose the pro forma
effects in accordance with SFAS No.123.

            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 determine market value as follows:

            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 risk free 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 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.

            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.


                                       26



            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. The need to file a lawsuit in a particular case is determined
by a variety of factors, including the Company's mandate to aggressively pursue
all monies owed. The other considered factors include the responsiveness of the
client, the running of applicable limitations periods, the ability to perfect a
lien against the subject property, the value of the receivable compared to the
costs of litigation and the likelihood of success in the lawsuit. 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 30, 2006 and
June 28, 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 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

Fiscal Year Ended June 30, 2006 Compared to Fiscal Year Ended June 28, 2005

Revenue

            Total revenue for the fiscal year ended June 30, 2006 increased by
$12,004,005, or 58.2%, to $32,644,415 from $20,640,410 for the fiscal year ended
June 28, 2005. This increase in revenue was primarily attributable to
approximately $20,954,000 of revenue from work relating to Hurricanes Katrina
and Wilma, $676,000 associated with our clean-up of non-weapons grade Anthrax in
New York City, and $514,000 for our remediation of environmental contaminants
from a New York City water pollution control plant. In addition, $220,000 of
revenue was recorded as the result of the settlement of a claim for work
performed on change orders, whose associated costs were recognized in prior
years. This increase was partially offset by a decrease of $406,000 in work
performed in relation to insurance claims and a decrease of $986,000 in our
spill and solid environmental remediation.

Cost of Revenues

            Cost of revenues increased $3,701,222, or 24.4%, to $18,877,957 (or
57.8% of revenues) for the fiscal year ended June 30, 2006 as compared to
$15,176,735 (or 73.5% of revenues) for the fiscal year ended June 28, 2005. This
increase was primarily attributable to labor and other costs relating to our
work in connection with Hurricanes Katrina and Wilma, the clean-up of
non-weapons grade Anthrax in New York City, and the remediation of environmental
contaminants from a New York City water pollution control plant.

Gross Profit

            Gross profit increased by $8,302,783, or 1,520%, to $13,766,458, or
42.2% of total revenues for the fiscal year ended June 30, 2006, as compared to
$5,463,675, or 26.5% of total revenues for the fiscal year ended June 28, 2005.
This increase in gross profit was due primarily to a higher percentage of higher
margin equipment usage in connection with our hurricane-related projects. Higher
margins on equipment used on such catastrophe-related projects are necessary to
compensate us for the fact that this equipment is generally used less often, or
may not be utilized at all, as compared to equipment utilized for more routine
projects.


                                       27



Selling, General and Administrative Expenses

            Selling, general and administrative expenses increased by
$3,580,067, or 73.3%, to $8,465,039 for the fiscal year ended June 30, 2006 from
$4,884,972 for the fiscal year ended June 28, 2005 and constituted approximately
26% and 24% of revenues in such periods, respectively. This increase was
primarily attributable to increased expenses in the write off of fees attributed
to the Laurus loan transaction ($1,200,000) and legal and accounting fees for
our Form S-1 registration statement (since withdrawn) ($1,008,000), partially
offset by a decrease to the allowance for doubtful accounts ($464,000) and
consulting fees ($272,000). Also, $1,450,389 of this increase was due to the
recognition on the income statement of stock-based compensation under SFAS No.
123R. In the prior year, the comparable measurement of stock-based compensation
was disclosed for pro forma purposes only.

Benefit Related to Variable Accounting Treatment for Officer Options

            Under the terms of a previous employment agreement that we entered
into and a separate agreement with Spotless (our former control shareholder),
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 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 fiscal 2006 due to the elimination of this risk on June 30, 2005.

Interest Expense

            Interest expense increased by $6,570,470, or 6,069%, to $6,678,735
for the fiscal year ended June 30, 2006 from $108,265 for the fiscal year ended
June 28, 2005. Substantially all of the increase was due to the Laurus financing
and the application of derivative accounting. This increase was primarily due to
an increase of $4,755,140 of interest expense incurred on the Laurus Note and
the related derivative liabilities, $713,865 of amortization of discounts, and
an increase of $1,181,868 attributable to the amortization of deferred financing
costs relating to the Laurus transaction. These increases were offset by
reductions in interest on obligations due to Spotless.

            Purchase discounts and financing fees paid to a related party
decreased from $255,585 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
option exercisable by Laurus at $0.0001 per share, 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 our 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.

Gain on Extinguishment of Debt

            A corollary effect of the derivative accounting we applied is the
recognition of gain or loss on extinguishment of debt arising every time a debt
principal payment is made, as the value of each of the embedded liabilities at
any point in time is derived from the balance of the respective host contract,
whether debt principal of the convertible note or number of shares issuable
under either the stock purchase option or warrant. During the year ended June
30, 2006, we made six scheduled debt payments, resulting in the recognition of a
gain on extinguishment of debt of $2,780,490.


                                       28



Mark-to-Market Loss on Embedded Derivative Liabilities

            Application of derivative accounting for the fiscal year ended June
30, 2006 resulted in a mark-to-market loss on the embedded derivative
liabilities aggregating $19,373,659 principally driven by a increase in our
stock price from $.09 to $.42. At the end of the fiscal year, such derivative
liabilities totaled $27,163,901. 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.

Provision for Income Taxes

            The provision for income taxes for the fiscal year ended June 30,
2006 was $2,105,760 as compared to $37,327 for the fiscal year ended June 28,
2005. This increase was the result of higher taxable income for the fiscal year
ended June 30, 2006, primarily attributable to hurricane-related work. The
provision for income taxes for fiscal 2006 reflects an effective rate of 38.3%
The accounting expense for taxes currently payable attributable to timing
differences could not be offset by the future benefit of the reversal of such
timing differences because a full valuation allowance was recorded. Such
valuation allowance was recorded because we do not believe that the utilization
of the tax benefit from net operating losses and other temporary differences are
"more likely than not" to be realized. As a result of a change in ownership on
June 30, 2005, net operating loss carryforwards are subject to an annual usage
limitation of approximately $272,000.

Net Income

            Our net income decreased by $20,570,256, comprised of the derivative
accounting related effects noted above and the $1,450,389 of stock-based
compensation expense recorded upon adoption of SFAS No. 123R. Our net loss for
fiscal 2006 was $20,517,190 as compared to fiscal 2005 net income of $53,066.
Income available for common stockholders was decreased in each year by preferred
stock dividends of $78,000. Basic loss per share in the fiscal year ended June
30, 2006 increased to $0.61 per share from $0.00 per share in the fiscal year
ended June 28, 2005.

      Fiscal Year Ended June 28, 2005 Compared to Fiscal Year Ended June 29,
      2004

Revenues

            Revenues increased by $1,473,657, or 7.7%, to $20,640,410 in our
fiscal year ended June 28, 2005, compared to $19,166,753 in our fiscal year
ended June 29, 2004, primarily attributable to an increase of $8,340,007 in our
emergency, disaster response and remediation work (associated primarily with
hurricanes in Florida) and an increase of $500,240 associated with our marine
spill business. In addition, $440,000 of revenues was recorded as the result of
the settlement of a claim for work performed on change orders. Costs associated
with these revenues have been recognized in prior years. These increases were
partially offset by a decrease of $2,642,995 in work performed in relation to
insurance claims, a decrease of $3,898,446 in our spill and soil environmental
remediation and a decrease of $413,736 in our asbestos, lead and mold work.

Cost of Revenues

            Cost of revenues decreased by $2,265,324, or 13%, to $15,176,735, or
73.5% of total revenues, in our fiscal year ended June 28, 2005, as compared to
$17,442,059, or 91% of total revenues, in our fiscal year ended June 29, 2004.
This decrease was primarily the result of a $2,350,249, or 27.1%, reduction in
payroll, including fringe and union benefits, and a $224,903 decrease in direct
project related expenses, such as the cost of subcontractors, materials,
supplies and equipment rental, partially offset by an increase of $309,828 in
other expenses, such as testing, sampling, truck-related expenses, training and
insurance. Our cost of revenues consists primarily of labor and labor related
costs, including salaries to laborers, supervisors and foremen, payroll taxes,
training, insurance and benefits. Additionally, cost of revenues include job
related insurance costs, repairs, maintenance and rental of job equipment, job
materials and supplies, testing and sampling, and transportation, disposal, and
depreciation of capital equipment.


                                       29



Gross Profit

            Gross profit increased by $3,738,981, or 216.8%, to $5,463,675, or
26.5%, of total revenues for our fiscal year ended June 28, 2005 from
$1,724,694, or 9% of total revenues, for our fiscal year ended June 29, 2004.
This increase in gross profit was due primarily to a greater proportion of
emergency response work related to hurricanes in Florida and equipment intensive
projects with higher gross margins and a corresponding reduction in labor costs.
In addition, there were no current year costs associated with the $440,000 of
revenues recorded in the 2005 period on the settlement of the previously
discussed claim.

Selling, General and Administrative Expenses

            Selling, general and administrative expenses decreased by $463,552,
or 8.7%, to $4,884,972 in our fiscal year ended June 28, 2005 from $5,348,524 in
our fiscal year ended June 29, 2004 and constituted approximately 24% and 28% of
total revenues, respectively. The decrease in selling, general and
administrative expenses was primarily due to reductions of $436,028 in payroll
and fringe benefits, $284,138 in marketing expenses and $193,889 in travel and
entertainment expenses, partially offset by increases of $233,393 in
professional fees and $818,691 in our allowance for doubtful accounts.

Expense (Benefit) Related to Variable Accounting Treatment for Officer
Securities

            Under the terms of an employment agreement, our president and chief
executive officer, until June 30, 2005, could sell to us all shares of our
common stock held by him and all shares of common stock underlying vested
options to purchase shares of our common stock held by him. There was a charge
of $76,089 related to variable accounting treatment for these securities in our
fiscal year ended June 28, 2005, which resulted from an increase in our stock
price, as compared to a benefit of $(348,626) in our fiscal year ended June 29,
2004, which resulted from a decrease in our stock price. 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.

Interest Expense

            Interest expense decreased by $7,677, or 6.62%, to $108,265 in our
fiscal year ended June 28, 2005 from $115,942 in our fiscal year ended June 29,
2004. The decrease in interest expense was primarily due to a decrease from debt
borrowing from Spotless.

Purchase Discounts and Financing Fee Paid to Related Party

            Purchase discounts and financing fees paid to related party
decreased by $552,934 or 68.4% to $255,585 in fiscal year end June 28, 2005 from
$808,519 in fiscal year ended June 29, 2004. This reduction was from a decrease
of sales of accounts receivable at a discount to Spotless.

(Benefit) Provision for Income Taxes

            The (benefit) provision for income taxes reflects an effective rate
of 31.2% and (15.2)% in fiscal 2005 and 2004, respectively. The accounting
benefit for taxable losses generated in prior periods was offset by recording a
full valuation allowance. Such valuation allowance was recorded because we do
not believe that the utilization of the tax benefits from operating losses, and
other temporary differences are "more likely than not" to be realized, as
required by accounting principles generally accepted in the United States of
America.


                                       30



Net (Loss) Income

            Net income and basic net (loss) attributable to common stockholders
per share for our fiscal year ended June 28, 2005 were $53,066 and $(24,934),
respectively. This compares to net (loss) and basic net (loss) attributable to
common stockholders per share for our fiscal year ended June 29, 2004 of
$(3,535,334) and $(3,613,334), respectively. The changes were primarily
attributable to the factors described above.

Liquidity and Capital Resources

            As of June 30, 2006, we had a cash balance of $610,884, a working
capital deficit of $(20,220,862) and a stockholders' deficit of $(16,749,349).
As of June 28, 2005, we had a cash balance of $512,711, a working capital
deficit of $(1,704,091) and a stockholders' deficit of $(712,889). As of June
29, 2004, we had a cash balance of $63,562, a working capital deficit of
$(2,103,971) and stockholders' deficit of $(787,955). We generated a net loss of
$(20,517,190), a net profit of $53,066 and a net loss of $(3,535,334) for the
fiscal years ended June 30, 2006, June 28, 2005 and June 29, 2004, respectively.

            Accounts receivable, net of allowance for doubtful accounts, at June
30, 2006, June 28, 2005 and June 29, 2004 were $11,235,904, $6,755,338 and
$6,652,806, respectively. For these periods, approximately $5,089,000,
$1,976,000 and $1,706,000, respectively, of these amounts were subject to
collection litigation, primarily relating to disputes over changed work orders
or other modifications to our scope of work. We do not believe that the disputed
receivables had a material effect on liquidity for the periods presented.

            Net cash provided by operating activities was $649,539 for the
fiscal year ended June 30, 2006, as compared to net cash provided by operations
of $818,673 for the fiscal year ended June 28, 2005. Net accounts receivable
increased by $4,480,566, or 66.3%, as of June 30, 2006 to $11,235,904, from
$6,755,338 as of June 28, 2005, primarily as a result of work performed in
connection with Hurricanes Katrina and Wilma and also reflecting delayed
payments by customers resulting from insurance reimbursement delays. Accounts
payable and accrued expenses decreased by $204,403, or 7.3%, as of June 30, 2006
to $2,581,693, from $2,786,096 as of June 28, 2005, primarily as a result of
timely payments to our venders as a result of our favorable cash position.

            Net cash provided by financing activities for the fiscal year ended
June 30, 2006 was $699,484, as compared to cash used by financing activities of
$280,316 for the fiscal year ended June 28, 2005, primarily as a result of
$7,350,000 (less $1,378,125 repaid to Laurus in fiscal 2006) received in
connection with our borrowings from Laurus, the proceeds of which borrowings
were used to pay related transaction and other expenses in the amount of
$2,622,020 and repay indebtedness to Spotless in the amount of $2,750,000. The
balance of the proceeds, in the amount of $1,977,980, was used to fund working
capital and our Hurricane Katrina mobilization costs. Financing activities for
the fiscal year ended June 28, 2005 used net cash of $280,316 for long-term debt
repayment.

            Cash used for capital expenditures increased to $1,250,850 during
the fiscal year ended June 30, 2006, as compared to $89,208 for the fiscal year
ended June 28, 2005, due to the cost of equipment purchased to perform the work
in the gulf coast region. 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 collecting our accounts
receivable or further significant growth could adversely effect 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 effect 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 funding to us. Currently, we have no credit facility
for additional borrowing.


                                       31



            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 that we will continue to bid on large projects,
                  although there can be no assurance that any of our bids will
                  be accepted or that we will have sufficient working capital.

            o     Control our selling, general and administrative expenses,
                  which were 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 during fiscal
                  2006. 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. 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 and addressing our difficulty
                  with cash collections and slow cash flow.

We have encountered 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 flow 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 the 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
flow. Further, a small percentage of our current projects are performed under
procedures that predate these improvements.

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

            o     a secured convertible term note, dated June 30, 2005, in the
                  principal amount of $5,000,000 (as amended and restated, the
                  "Note"). 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 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(s) of the registration statement
                  or registration statements as required to be filed by us
                  pursuant to the registration rights agreement described below;


                                       32



            o     a twenty-year option, dated June 30, 2005, to purchase
                  30,395,179 shares of our common stock at a purchase price of
                  $.0001 per share, of which a portion has been exercised to
                  purchase 1,500,000 shares; and

            o     a seven-year common stock purchase warrant, dated June 30,
                  2005, to purchase 13,750,000 shares of our common stock at a
                  purchase price of $0.10 per share.

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

            o     On July 13, 2005, Laurus loaned us an additional $350,000, and
                  we amended and restated the Note, to be in the principal
                  amount of $5,350,000.

            o     On September 9, 2005, Laurus loaned us an additional $650,000,
                  and we further amended and restated the Note to be in the
                  principal amount of $6,000,000.

            o     On October 6, 2005, Laurus loaned us an additional $1,350,000,
                  and we further amended and restated the Note to be in the
                  principal amount of $7,350,000.

            On September 29, 2006, we entered into the Omnibus Amendment with
Laurus and amended and restated the Note. The Omnibus Amendment and the Note
improve for us certain terms of the original agreements with Laurus and
eliminate the authorized share deficiency that caused the necessity of applying
derivative liability accounting, as described above in Management's Discussion
and Analysis of Financial Condition and Results of Operations. The transaction
terms, which significantly reduce the shares issuable to Laurus, include:

            1) $4,000,000 of the remaining principal balance on the Note became
non-convertible.

            2) Six months (July through December 2006) of principal payments
under the Note have been deferred to the maturity date.

            3) Future monthly payments on the Note have been reduced to $100,000
beginning January 1, 2007, first applied to interest and then to principal.

            4) If at any time we have a cash and cash equivalents total balance
in excess of $1,000,000, 50% of any cash we receive in excess of such amount
will be used to pay down principal of the Note.

            5) The Note was extended for one year (through June 2009).

            6) An option to purchase 11,145,000 shares of Common Stock at a
nominal exercise price was issued to Laurus on September 29, 2006.

            7) The beneficial ownership cap on securities of ours that may be
beneficially owned by Laurus at any one time has been raised from 4.99% to
9.99%.

            8) Laurus agreed to transfer voting control of all securities of
ours owned by them either to us or to a third party.

            This Note is the only Laurus note issued by us that is currently
outstanding. Payments made by us on the Note on the required due dates, and
conversions on the Note, have reduced the current principal balance of the Note
to $5,942,175 as of October 10, 2006.

            Concurrently with the Laurus financing, 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., an affiliate of our previous
majority stockholder and senior secured lender, bearing interest at LIBOR plus
1%.


                                       33



            As part of the financing transaction, Laurus required us to obtain a
$3,000,000 key man renewable term life insurance policy on the life of our
president and chief executive officer. We are the beneficiary of the policy,
which has a current annual premium of $24,969, payable by us. Laurus is a
contingent beneficiary of this life insurance policy.

CONTRACTUAL COMMITMENTS

            The table below summarizes contractual obligations and commitments
as of June 30, 2006, including principal and interest payments on our debt (1):



                                        Total       1 Year      2-3 Years   4-5 Years   Thereafter
                                     ----------   ----------   ----------   ---------   ----------
                                                                             
Operating Leases                     $  509,183   $  479,183   $   30,000    $    --        $--
Capitalized Leases--Principal           376,554      188,310      170,841     17,403         --
Capitalized Leases--Interest             29,495       20,125        9,251        119
Laurus Note Principal                 5,971,875      300,290    5,671,585         --         --
Laurus Note Interest Expense--Cash    1,638,935      605,768    1,033,167         --         --
Spotless Note Principal                 500,000           --      500,000         --         --
Spotless Note Interest Expense           62,815           --       62,815         --         --
                                     ----------   ----------   ----------    -------        ---
Total                                $9,088,857   $1,593,676   $7,477,659    $17,522        $--
                                     ==========   ==========   ==========    =======        ===


(1) This table reflects the effectiveness of Laurus' agreement to defer
principal payments from July 1, 2006 through December 31, 2006, and commencing
January 1, 2007, to make monthly amortization payments in the amount of $100,000
including interest until January 1, 2009.

            These amounts are based on assumed interest payments reflecting:

            o     the Laurus Note at a rate of 10.25% per annum;

            o     the Spotless note at a rate of 6.15% per annum; and

            o     an aggregate of $376,554 of other long-term debt with
                  maturities ranging from 3 months to 50 months for financed
                  trucks and vehicles with interest rates ranging from .01% 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 June 30, 2006, the Note had a principal
balance of $5,971,875 with a corresponding discount of $5,971,875, resulting in
a carrying amount of $0 on our balance sheet.

Effect of Inflation

            Inflation has not had a material impact on our operations during
fiscal years ended June 30, 2006, June 28, 2005 and June 29, 2004, except that
we experienced an increase of 20.5% in fuel costs during the fiscal year ended
June 30, 2006, due to increased gasoline 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;


                                       34



            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 effect our
                  operations and financial results and may adversely effect the
                  performance of other projects due to scheduling and staffing
                  conflicts.

ITEM 7A. 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 Note. In connection with
the issuance of the Note, we issued to Laurus a warrant to purchase 13,750,000
shares of our common stock and options to purchase 30,395,175 and 11,145,000
shares of our common stock. On September 12, 2005, we issued 1,500,000 shares of
our common stock to Laurus in connection with its partial exercise of the
original option. These shares have been recorded at their intrinsic value, which
is based on the difference between the exercise price per share and the market
price per share of our common stock on June 30, 2005, the date of issuance at
the inception date of the agreement.

            The intrinsic value of the options and the fair value of the warrant
and the underlying shares of common stock are tied in a large part to our stock
price. If our stock price increases between reporting periods, the option,
warrant and underlying shares of common stock become more valuable. As such,
there is no way to forecast what the non-operating, non-cash charges will be in
the future or what the future impact will be on our financial statements.

            Interest Rate Sensitivity--Interest rate risk is the risk that
interest rates on our debt is 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 we shall have registered such
number of shares of common stock as required to be registered on a registration
statement declared effective by the Securities and Exchange Commission, 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 4 months to 50 months
aggregating to $376,555 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 $137,000
annually. This hypothetical calculation reflects the assumed interest payments
for the:

                  o     Note at a rate of 10.25% per annum;

                  o     Spotless note at a rate of 6.15% per annum; and

                  o     Various other debt for financed trucks and vehicles with
                        maturities ranging from 4 months to 50 months with
                        interest rates ranging from .01% to 13.99%.


                                       35



ITEM 8. FINANCIAL STATEMENTS

            Set forth below is a list of the financial statements of ours
included in this Annual Report on Form 10-K following Item 15.


                                  Item                                     Page
                                  ----                                     ----
Reports of Independent Registered Public Accounting Firms                    F-2
Consolidated Balance Sheets as of June 30, 2006 and June 28, 2005            F-5
Consolidated Statements of Operations for our fiscal years ended
  June 30, 2006, June 28, 2005 (Restated), and June 29, 2004 (Restated)      F-6
Consolidated Statements of Stockholders' Deficiency for our fiscal
  years ended June 30, 2006, June 28, 2005, and June 29, 2004                F-7
Consolidated Statements of Cash Flows for our fiscal years ended
  June 30, 2006, June 28, 2005, and June 29, 2004 (Restated)                 F-8
Notes to Consolidated Financial Statements                                   F-9

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

            None

ITEM 9A. CONTROLS AND PROCEDURES

            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 principal executive and financial officers 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 annual report on Form 10-K.

            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 quarters ended September 27, 2005, December 27, 2005 and
March 28, 2006 affected their conclusions that our disclosure controls and
procedures, as of June 30, 2006, we were effective in timely alerting them to
material company information required to be included in our periodic filings
with the Securities and Exchange Commission. 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 the process in connection with preparing responses to a comment
letter that we received from the Securities and Exchange Commission in relation
to its review of our registration statement on Form S-1 filed October 3, 2005.
Management recorded in equity the common stock purchase option and warrant
issued to Laurus in connection with the refinancing. Subsequently, during the
process of responding to the Securities and Exchange Commission and further
analysis, management determined that derivative accounting applied to these
instruments and the convertible note as they contained embedded derivative
liabilities. 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 controls and procedures were
effective to ensure that required information was disclosed to them as
appropriate to allow timely decisions regarding required disclosure.

            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. 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).

            Our chief executive officer and our chief financial officer reached
a similar conclusion with respect to our restatement to provide separate line
item disclosure in the consolidated statement of operations for purchase
discounts and financing fees paid to a related party. These amounts were
previously included as a component of interest expense and disclosed in a
related party footnote. Our chief executive officer and our chief financial
officer reached a similar conclusion with respect to our restatement of the
statement of cash flows for the year 2004 to reclassify fixed assets acquired
through financing arrangements as a supplemental non-cash disclosure on the
statement of cash flows. Management believes these restatements were a matter of
presentation and not a break-down of disclosure controls and procedures.

                                       36



            In connection with the foregoing, our chief executive officer and
chief financial officer have concluded that our current disclosure controls and
procedures are effective as of the end of the period covered by this annual
report to ensure that information that is required to be disclosed in the
reports we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms, and include controls and procedures designed to ensure that information
we are required to disclose in such reports is accumulated and communicated to
management, including its principal executive and financial officers, as
appropriate to allow timely decisions regarding required disclosure.

            During the fourth quarter of fiscal 2006, there were no changes in
our internal control over financial reporting that materially effected, or are
reasonably likely to materially effect, our internal control over financial
reporting.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

            The names of our directors and executive officers, their ages as of
September 30, 2006, and certain other information about them, are set forth
below:

Name                     Age   Positions and Offices
- ----                     ---   ---------------------
Michael O'Reilly          56   Director, Chairman of the Board of Directors,
                               President and Chief Executive Officer
Arthur J. Wasserspring    64   Chief Financial Officer
Anthony P. Towell         75   Director
Dr. Kevin J. Phillips     58   Director

Principal Occupations of Directors and Executive Officers

            The following is a brief summary of the business experience and
background of our directors and executive officers based upon information
provided to us by such persons.

            Michael O'Reilly has served as our president and chief executive
officer and a director since 1996, and has been the sole director and president
of our Trade-Winds Environmental Restoration, Inc. subsidiary since 1993. Since
September 2005, and from 1996 to 1999, he has been and was also the chairman of
our board of directors. Prior to joining us, Mr. O'Reilly was vice president and
chief operating officer of North Shore Environmental Solutions, Inc., an
environmental remediation firm which provided a wide array of services,
including asbestos, hazardous materials and lead removal.

            Arthur J. Wasserspring, CPA, was appointed as our chief financial
officer on May 24, 2006. Prior to joining us, from May 2002 through February
2006, Mr. Wasserspring served as the Controller, acting as principal financial
officer, of The Weeks-Lerman Group LLC, a wholesale distributor of office
supplies. From December 2000 through May 2002, Mr. Wasserspring served as an
independent consultant and provided chief financial officer services to various
clients, including SEC reporting companies, in the New York City metropolitan
area. From June 1994 through December 2000, Mr. Wasserspring served as Vice
President of Finance of Worksafe Industries, Inc., an SEC reporting company
engaged in the manufacture and distribution of safety protective apparel. Mr.
Wasserspring is a licensed CPA in the State of New York and received a BS in
Accounting from Miami University (Ohio).

            Anthony P. Towell has served as a director since November 1996.
Prior to December 2000, he was a Vice President, Co-Chairman, and a director of
Worksafe Industries, Inc., a manufacturing company that specialized in safety
protective apparel. He also held executive positions during a 25-year career
with the Royal Dutch Shell Group.

            Dr. Kevin J. Phillips, Ph.D. has served as a director since March
1998. Over the past five years, Dr. Phillips has been a partner, principal and
director of FPM Group Ltd., formerly known as Fanning, Phillips & Molnar, an
engineering firm located on Long Island, New York. Dr. Phillips has a B.A. in
Civil Engineering from the City University of New York, an M.S. in Civil
Engineering from the Massachusetts Institute of Technology and a Ph.D. in
Environmental Engineering from the Polytechnic Institute of New York. He is a
licensed professional engineer in eight states, including New York,
Pennsylvania, New Jersey and Connecticut, with over 20 years experience in
geohydrology and environmental engineering. Dr. Phillips serves on our board as
the nominee of our series A convertible preferred stockholders.


                                       37



Board of Directors

            Each member of our board is elected at the annual meeting of
stockholders and serves until the next annual meeting of stockholders and until
a successor has been elected and qualified or their earlier death, disability,
resignation or otherwise is removed. Vacancies on our board are filled by a
majority vote of the remaining members of our board. Our board of directors met
seven times during our fiscal year ended June 30, 2006.

            Our board has an audit committee and a compensation committee.

Audit Committee

            The audit committee is currently comprised of Anthony P. Towell and
Dr. Kevin J. Phillips, each of whom does not have any relationship with us that
may interfere with the exercise of independent judgment in carrying out the
responsibilities of a director. The board of directors has determined that
Anthony P. Towell is an "audit committee financial expert" as defined under Item
401(h) of Regulation S-K of the Securities Exchange Act of 1934, and our audit
committee members are "independent directors," as defined by the NASDAQ
Marketplace Rule 4200(a)(15) and the Sarbanes-Oxley Act of 2002.

            The audit committee, which met seven times during our fiscal year
ended June 30, 2006, operates pursuant to a charter approved by our board of
directors.

            The audit committee has been established to:

            1)    assist our board in its oversight responsibilities regarding:

                  o     the integrity of our financial statements,

                  o     our compliance with legal and regulatory requirements,

                  o     the financial reporting process, including reviewing our
                        annual, quarterly and other reports,

                  o     the independent accountant's qualifications and
                        independence, and

                  o     the performance of our internal audit function;

            2)    retain and terminate our independent accountant;

            3)    review and approve non-audit and special engagement services
                  to be performed by the independent accountant; and

            4)    perform such other functions as our board may from time to
                  time assign to the audit committee.

            In discharging its oversight role, the audit committee is empowered
to meet and discuss with our management and independent auditors the quality and
accuracy of our accounting principles, the completeness and clarity of our
financial disclosures and other significant decisions made by management in the
preparation of our financial reports.


                                       38



Compensation Committee

            The compensation committee is currently comprised of Dr. Kevin J.
Phillips and Anthony P. Towell. The compensation committee met four times during
our fiscal year ended June 30, 2006 and operates pursuant to a charter approved
by our board of directors. Currently, both committee members are "independent
directors," as defined by the NASDAQ Marketplace Rule 4200(a)(15) and the
Sarbanes-Oxley Act of 2002.

            The principal responsibilities of the compensation committee are to
review and approve compensation of our chief executive officer and other
executive officers with compensation of $100,000 or more per year and administer
our existing stock plans, other than our 2001 equity incentive plan, which is
administered by our board of directors.

Director Compensation

            Each of our non-employee directors receives $5,000 annually for
service on our board of directors. Our employee director receives no cash
compensation for his service as a director. Additionally, each member of the
audit committee receives $300 a month for their services on the audit committee
and the chairman of the audit committee receives $500 a month for his services
as chairman of the audit committee. All of our directors are reimbursed for
expenses actually incurred in connection with attending meetings of our board of
directors.

            On May 24, 2005, as compensation for service on our special
committee of our board of directors during our fiscal year ended June 28, 2005,
we granted to Anthony P. Towell a ten-year option to purchase 250,000 shares of
our common stock, at an exercise price equal to $.06 per share, the market value
on the date of grant.

            On December 6, 2004, as compensation for service on our board of
directors during our fiscal year ended June 29, 2004, we granted to each of our
non-employee directors serving on the audit committee options, pursuant to our
2001 equity incentive plan, with terms of ten years to purchase 100,000 shares
of our common stock, at an exercise price equal to $.035 per share, the market
value on the date of grant.

CODE OF ETHICS

            We have adopted a Code of Ethics within the meaning of Item 406(b)
of Regulation S-K of the Exchange Act. This Code of Ethics applies to directors
and senior officers, such as the principal executive officer, principal
financial officer, controller, and persons performing similar functions, of
ours. Our Code of Ethics is publicly available on our website at
www.tradewindsenvironmental.com. Any amendments or waivers to our Code of Ethics
will be disclosed on our website following the date of any such amendment or
waiver. Information on our website, however, does not form a part of our annual
report.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

            Section 16(a) of the Exchange Act requires our executive officers,
directors and persons who beneficially own more than ten percent of a registered
class of our equity securities ("Reporting Persons") to file reports of
beneficial ownership and changes in beneficial ownership on Forms 3, 4 and 5
with the SEC. These Reporting Persons are required by SEC regulation to furnish
us with copies of all Forms 3, 4 and 5 that they file with the SEC. Based solely
upon our review of the copies of all Forms 3, 4 and 5 and amendments to these
forms, we believe that all Reporting Persons complied on a timely basis with all
filing requirements applicable to them with respect to our fiscal year ended
June 30, 2006.


                                       39



ITEM 11. EXECUTIVE COMPENSATION

                             EXECUTIVE COMPENSATION

            The following summary compensation table sets forth the cash and
other compensation paid during the last three full fiscal years to our Chairman,
President and Chief Executive Officer (the "Named Executive Officer"). Other
than our Chairman, President and Chief Executive Officer, no individual who
served as an executive officer received compensation for services rendered to us
at $100,000 or more for our fiscal year ended June 30, 2006.

                           Summary Compensation Table



                                                                                      Long-Term
                                                                                    Compensation
                                                  Annual Compensation                  Awards
                                         ------------------------------------  ----------------------
                                 Fiscal                              Other     Restricted  Securities
                                 Year                               Annual        Stock    Underlying         All Other
Name and Principal Position(s)   Ended   Salary ($)   Bonus ($)  Compensation  Awards ($)    Options      Compensation ($)
- ------------------------------  -------  ----------  ----------  ------------  ----------  ----------     ----------------
                                                                                       
Michael O'Reilly, Chairman      6/30/06   $301,450   $397,580(5)      --           --      15,469,964(1)         --
  President and                 6/28/05   $285,000      2,937         --           --       2,250,000(2)         --
  Chief Executive Officer       6/29/04   $285,000         --         --           --         450,000(3)    $74,580(4)


(1)   Includes options granted to Mr. O'Reilly on June 30, 2005 to purchase
      15,469,964 shares of our common stock at an exercise price of $.09 per
      share. All of the options are fully vested.

(2)   Includes options granted to Mr. O'Reilly (a) on May 24, 2005, to purchase
      2,000,000 shares of our common stock at an exercise price of $.01 per
      share, and (b) on May 24, 2005, to purchase 250,000 shares of our common
      stock at an exercise price of $0.1875 per share. All of the options are
      fully vested.

(3)   On November 10, 2003, we granted Mr. O'Reilly options to purchase (a)
      250,000 shares of our common stock at an exercise price of $0.22 per share
      and (b) 200,000 shares of our common stock at an exercise price of $0.34
      per share. Such options are fully vested.

(4)   This compensation consists of the value of in-kind damage mitigation and
      restoration goods and services that we provided to Mr. O'Reilly in
      connection with severe water damage caused by a failed water heater at a
      condominium that he beneficially owned and allowed us to use for marketing
      and employee-relations purposes. In connection with these services, our
      entire direct costs and allocated overhead, without a markup, equaled
      approximately $56,780. We also paid the full carrying costs, including
      mortgage payments, in the amount of $17,800 relating to this condominium.

(5)   Mr. O'Reilly, under the terms of a current employment agreement, earned a
      bonus equal to 5.0% of our earnings before interest, depreciation,
      amortization and taxes and payments to Laurus. The mark-to-market effect
      on embedded derivatives was also excluded for purposes of the calculation.

Option/Stock Appreciation Rights Grants ("SAR") In Last Fiscal Year

            The following table sets forth (a) the number of shares underlying
options granted to each named executive officer during our fiscal year ended
June 30, 2006, (b) the percentage the grant represents of the total number of
options granted to all of our employees during our fiscal year ended June 30,
2006, (c) the per share exercise price of each option, (d) the expiration date
of each option and (e) the potential realizable value of each grant.



                                                                         Potential Realizable
                                                                           Value at Assumed
                                 Percent of                                  Annual Rates
                   Number of   Total Options                                of Stock Price
                  Securities      Granted                                     Appreciation
                  Underlying    to Employees   Exercise                     for Option Term
                    Options       in Fiscal      Price     Expiration    --------------------
Name                Granted         Year        ($/Sh)        Date           5%($)   10%($)
- ----------------  ----------   -------------   --------   ------------   ---------   --------
                                                                   
Michael O'Reilly  15,469,964         100%         .09     May 23, 2015     309,399   773,498



                                       40



Aggregated  Option/SAR  Exercises  in  Last  Fiscal  Year  and  Fiscal  Year-End
Option/SAR Values



                                                       Number of
                                                       Securities           Value of
                                                       Underlying         Unexercised
                                                      Unexercised         In-The-Money
                                                      Options/SARs       Options/SARs
                                                       at June 30,         at June 30,
                                                        2006 (#)            2006 ($)
                                                    ----------------   -------------------
                   Shares Acquired       Value        Exercisable/        Exercisable/
Name               on Exercise (#)   Realized ($)   Unexercisable(1)   Unexercisable(1)(2)
- ----------------   ---------------   ------------   ----------------   -------------------
                                                               
Michael O'Reilly          --              $--          15,469,964          $5,105,088
Michael O'Reilly          --              $--           2,000,000          $  820,000
Michael O'Reilly          --              $--             250,000          $   58,125
Michael O'Reilly          --              $--           2,811,595          $  958,641
Michael O'Reilly          --              $--           2,674,714          $  911,970
Michael O'Reilly          --              $--             200,000          $   40,000
Michael O'Reilly          --              $--             250,000          $   20,000
Michael O'Reilly          --              $--             650,000          $  149,500


- ----------
(1)  All options were exercisable at June 30, 2006.

(2)  The value is calculated based on the aggregate amount of the excess of $.42
     (the  closing  sale price per share for our common  stock on June 30, 2006)
     over the relevant exercise price(s).

Employment Agreements

            On June 30, 2005, we entered into an employment agreement with
Michael O'Reilly, our president and chief executive officer. The employment
agreement is for a term of five years beginning on July 1, 2005 and
automatically renews yearly provided that neither party objects to its renewal
six months prior to July 1, 2010, calls for a base salary of $285,000 per year
and a bonus equal to 2.5 percent of our pre-tax income (as that term is defined
in the Employment Agreement). On March 13, 2006, the Compensation Committee of
our Company approved an increase in Mr. O'Reilly's base salary to $342,000 per
year. In addition, on such date, in lieu of the bonus provided by the Employment
Agreement, we agreed to pay Mr. O'Reilly an annual bonus for each fiscal year,
commencing with the fiscal year ending in June 2006, in an amount equal to 5% of
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)
determined in accordance with Generally Accepted Accounting Principles and
calculated without taking into account any payments made by us to Laurus. The
amount of such bonus and the date of payment shall be authorized by the
Compensation Committee within 90 days after the end of each fiscal year. An
amendment to Mr. O'Reilly's employment agreement, effective as of March 13,
2006, was executed by Mr. O'Reilly and us to reflect these revisions to
compensation. Mr. O'Reilly currently holds 15,647,297 shares of our common
stock, and vested options to purchase 24,306,273 shares of our common stock.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

                      EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth information, as of June 30, 2006, concerning our
equity compensation plans:



                                      Number of                               Number of Securities
                                      Securities         Weighted-average   Remaining Available for
                                     To Be Issued       Exercise Price of    Future Issuance Under
                                   Upon Exercise of        Outstanding         Plans (Excluding
                                 Outstanding Options,   Options, Warrants   Securities Reflected in
        Plan Category             Warrants and Rights      and Rights             Column (a))
- ------------------------------   --------------------   -----------------   -----------------------
                                         (a)                    (b)                   (c)
                                                                          
Equity compensation plans
  approved by security holders        2,750,000                $0.176              2,250,000

Equity compensation plans not
  approved by security holders          100,000 (1)            $0.109              2,900,000
                                      ---------                                    ---------
Total                                 2,850,000                $0.173              5,150,000


(1)   Does not include individual grants of options and warrants to our
      president and chief executive officer to purchase up to 7,736,309 of our
      common stock, not as part of any general stock compensation plan. These
      options and warrants were all granted on or prior to May 24, 2005 and have
      terms ranging from 5 to 10 years, with exercise prices ranging from $.01
      to $0.1875 per share. These options vested immediately.


                                       41



         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

            The following table sets forth the beneficial ownership of our
            voting stock as of September 30, 2006 of:

            o     each person known by us to beneficially own 5% or more of the
                  shares of the outstanding shares of any class of our voting
                  stock, based on filings with the Securities and Exchange
                  Commission and certain other information;

            o     each of our executive officers, directors and director
                  nominees; and

            o     all of our executive officers, directors and director nominees
                  as a group.



                                                             Class
                             -----------------------------------------------------------------
                                       Common Stock                   Series A Preferred
                                   Amount and Nature                  Amount and Nature
                               Of Beneficial Ownership (1)       of Beneficial Ownership (1)
                             -------------------------------   -------------------------------
                              Number of Shares    Percent of    Number of Shares    Percent of
 Name of Beneficial Owner    Beneficially Owned      Class     Beneficially Owned     Class
- --------------------------   ------------------   ----------   ------------------   ----------
                                                                           
Michael O'Reilly       (2)     39,953,570  (3)       66.4%                --             --
Anthony P. Towell      (2)        914,533  (4)        1.5%                --             --
Dr. Kevin Phillips     (5)      1,645,839  (6)        2.7%           650,000           50.0%
Arthur J. Wasserspring (7)              0  (7)          *                 --             --
Gary Molnar            (5)      1,135,839  (8)        1.9%           650,000           50.0%
Laurus Master Fund, Ltd.        3,356,220  (9)        9.9%
All directors and
Executive Officers
as a group
(4 individuals)                42,513,942 (10)       70.6%           650,000           50.0%


*     Less than 1 percent

(1)   Beneficial ownership is determined in accordance with the rules of the
      SEC. In computing the number of shares beneficially owned by a person and
      the percentage ownership of that person, shares of our common stock
      subject to options or warrants held by that person that are currently
      exercisable or convertible or will become exercisable or convertible
      within 60 days, while such shares are not deemed outstanding for purposes
      of computing percentage ownership of any other person. Unless otherwise
      indicated in the footnotes below, the persons and entities named in the
      table have sole voting and investment power with respect to all shares
      beneficially owned, subject to community property laws where applicable.


                                       42



(2)   The address for this person is c/o Windswept Environmental Group, Inc.,
      100 Sweeneydale Ave., Bay Shore, New York 11706.

(3)   Includes 15,647,297 shares of our common stock directly held by Mr.
      O'Reilly and options under which he may purchase 24,306,273 shares of our
      common stock. Does not include 11,000 shares of our common stock directly
      held by JoAnn O'Reilly, the wife of Mr. O'Reilly, as to which Mr. O'Reilly
      disclaims beneficial ownership.

(4)   Includes 10,000 shares of our common stock directly held by Mr. Towell,
      4,533 shares of our common stock held jointly by Mr. Towell and his wife,
      and options under which he may purchase 900,000 shares of our common
      stock.

(5)   The address for each of Dr. Phillips and Mr. Molnar is c/o FPM Group Ltd.,
      909 Marconi Avenue, Ronkonkoma, New York 11779.

(6)   Includes 245,839 shares of our common stock directly held by Dr. Phillips,
      options under which he may purchase 750,000 shares of our common stock and
      650,000 shares of our common stock issuable upon conversion of 650,000
      shares of series A convertible preferred stock directly held by Dr.
      Phillips.

(7)   Arthur J. Wasserspring was appointed as our chief financial officer on May
      24, 2006.

(8)   Includes 235,839 shares of our common stock directly held by Mr. Molnar,
      650,000 shares of our common stock issuable upon conversion of 650,000
      shares of our series A preferred stock directly held by Mr. Molnar and an
      option to purchase 250,000 shares of our common stock.

(9)   The address of Laurus is c/o Laurus Capital Management, LLC, 825 Third
      Avenue, New York, NY 10022. The shares of common stock reported as
      beneficially owned by Laurus includes 1,500,000 shares of outstanding
      common stock. Certain of the shares of common stock reported as
      beneficially owned are shares that Laurus has the right to acquire upon
      conversion of the Note, and exercise of options and a warrant held by it.
      Laurus is subject to a beneficial ownership limitation of 9.99% of our
      common stock. The amount reported as beneficially owned is subject to such
      limitation.

(10)  Includes 15,917,669 shares of our common stock directly held, options to
      purchase an aggregate of 25,956,273 shares of our common stock, and
      650,000 shares of our common stock issuable upon conversion of 650,000
      shares of series A convertible preferred stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

            o     a secured convertible term note, dated June 30, 2005, in the
                  principal amount of $5,000,000 (as amended and restated, the
                  "Note"). 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 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(s) of the registration statement
                  or registration statements as required to be filed by us
                  pursuant to the registration rights agreement described below;

            o     a twenty-year option (the "Initial Option"), dated June 30,
                  2005, to purchase 30,395,179 shares of our common stock at a
                  purchase price of $.0001 per share, of which a portion has
                  been exercised to purchase 1,500,000 shares; and

            o     a seven-year common stock purchase warrant, dated June 30,
                  2005, to purchase 13,750,000 shares of our common stock at a
                  purchase price of $0.10 per share.


                                       43



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

            o     On July 13, 2005, Laurus loaned us an additional $350,000, and
                  we amended and restated the Note, to be in the principal
                  amount of $5,350,000.

            o     On September 9, 2005, Laurus loaned us an additional $650,000,
                  and we further amended and restated the Note to be in the
                  principal amount of $6,000,000.

            o     On October 6, 2005, Laurus loaned us an additional $1,350,000,
                  and we further amended and restated the Note to be in the
                  principal amount of $7,350,000.

            On September 29, 2006, we entered into the Omnibus Amendment with
Laurus and amended and restated the Note. The Omnibus Amendment and the Note
improve for us certain terms of the original agreements between the parties and
eliminate the authorized share deficiency that caused the necessity of applying
derivative liability accounting. The transaction terms, which significantly
reduce the shares issuable to Laurus, among other things, include:

            1) $4,000,000 of the remaining principal balance on the Note became
non-convertible.

            2) Six months (July through December 2006) of principal payments
under the Note have been deferred to the maturity date.

            3) Future monthly payments on the Note have been reduced to $100,000
beginning January 1, 2007, first applied to interest and then to principal.

            4) If at any time we have a cash and cash equivalents total balance
in excess of $1,000,000, 50% of any cash received by us in excess of such amount
will be used to pay down principal of the Note.

            5) The Note was extended for one year (through June 2009).

            6) An option to purchase 11,145,000 shares of Common Stock at a
nominal exercise price was issued to Laurus on September 29, 2006 (together with
the Initial Option, the "Options").

            7) The beneficial ownership cap on securities of ours that may be
beneficially owned by Laurus at any one time has been raised from 4.99% to
9.99%.

            8) Laurus agreed to transfer voting control of all securities of
ours owned by them either to us or to a third party.

            This Note is the only Laurus note issued by us that is currently
outstanding. Payments made by us on the Note on the required due dates, and
conversions on the Note, have reduced the current principal balance of the Note
to $5,942,175 as of October 10, 2006.

            Concurrently with the Laurus financing, 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., an affiliate of our previous
majority stockholder and senior secured lender, bearing interest at LIBOR plus
1%.


                                       44



            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
                                                                      ==========

            As part of the financing transaction, Laurus required us to obtain a
$3,000,000 key man renewable term life insurance policy on the life of our
president and chief executive officer. We are the beneficiary of the policy,
which has a current annual premium of $24,969 payable by us. Laurus is a
contingent beneficiary of this life insurance policy.

            Set forth below is a summary of the material terms of the agreements
governing the Laurus financing transaction, as amended through September 29,
2006:

            The funds borrowed under the Laurus financing are governed by the
Securities Purchase Agreement, as amended, the Note, a security agreement, a
stock pledge agreement, a registration rights agreement, as amended, and a
subsidiary guaranty. Under the terms of the Securities Purchase Agreement, as
amended, Laurus had a right to provide us with $1,300,000 of financing in
addition to the original $5,000,000 that it provided to us on the same terms as
the original Note. In connection with the additional borrowings described above,
Laurus has provided all of such additional financing.

Principal Borrowing Terms and Prepayment. Pursuant to the terms of the Note,
which matures on June 30, 2009, we made, on the first day of each month, monthly
payments of principal to Laurus in the amount of $229,687.50, plus interest, for
the period from January 1, 2006 through June 30, 2006. For the period from July
1, 2006 through December 31, 2006, we are required to make interest payments
only, which payments have been made through the date of the filing of this Form
10-K. Commencing January 1, 2007, until maturity, we are required to make
monthly payments to Laurus of $100,000, first applied to interest and then to
principal. In addition, if at any time after September 29, 2006, we have a cash
and cash equivalents balance $1,000,000, 50% of any cash received by us in
excess of such amount will be used to pay down principal of the Note. Principal
repayments were originally 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, 2009.
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 prior to the first of each 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 day of each month
                  for which payment is due;


                                       45



            o     the common stock to be issued 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 9.99%; o
                  we are not in default of the Note; and

            o     the maximum number of shares of common stock into which the
                  Note is convertible is not exceeded.

            Should we be required to pay cash, this may have an adverse effect
on our cash flow and liquidity.

            The Note may be redeemed by us in cash by paying the holder of the
Note 110% of the principal amount, plus accrued interest. As discussed below,
the holder of the Note may convert a portion of the Note, together with related
interest and fees, into fully paid shares of our common stock at any time,
provided that, commencing September 29, 2006, the amount converted cannot exceed
$1,942,175. 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 Options 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 Options 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 Options 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
Options and the warrant, multiplied by the number of shares with respect to
which the Options or warrant are exercised. There would be no proceeds payable
to us upon a cashless exercise of the Options or the warrant. There can be no
assurances that Laurus will exercise the Options 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 Initial 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 options if such conversion and/or
exercise would cause its beneficial ownership of shares of our common stock to
exceed 9.99% of the outstanding shares of our common stock. The 9.99% limitation
is null and void without notice to us upon the occurrence and during the
continuance of an event of default or upon 61 days' prior written notice to us.
As of the date of this filing, Laurus directly beneficially owns 1,500,000
shares of our common stock, or approximately 4.42% of our outstanding common
stock. As a result, Laurus could only acquire up to approximately 1,856,220
additional shares, which would constitute a conversion of approximately $167,060
of the principal amount of the Note, while remaining in compliance with the
9.99% limitation. Since Laurus is irrevocably prohibited from waiving this 9.99%
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.


                                       46



            Events of Default and Collateral. In the event we default on the
Note, we will be required to pay 110% of the outstanding principal amount of the
Note, plus accrued but unpaid interest. In addition, upon the occurrence of an
event of default, the interest rate charged with respect to the Note 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, and as currently in effect, contains no specific financial covenants.
The Master Security Agreement and the Note, as amended, 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 unvacated, unbonded or unstayed 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;

            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.

            Registration Rights. Pursuant to the terms of the Registration
Rights Agreement, as amended, we are obligated to file, on or prior to December
15, 2006, a registration statement with the Securities and Exchange Commission
registering the resale of 5,395,061 shares of our common stock issuable to
Laurus, which registration statement is required to become effective by February
15, 2007. We have also agreed to file such further registrations as necessary to
register the remaining shares of common stock underlying the securities of ours
owned by Laurus not registered in the foregoing registration statement, in each
case within 45 days of written notice by Laurus.

            As of June 28, 2005, we owed Spotless Plastics (USA) Inc. $5,000,000
of principal and $127,730 of interest under a promissory note dated November 16,
2001 (the "Spotless Loan"), in the original principal amount of $1,700,000. The
note we issued to Spotless was collateralized by all of our assets. During the
fiscal year ended June 29, 2004, we borrowed $3,300,000 from Spotless for
working capital requirements and to fund our losses.

            As of June 30, 2006, Spotless was due payment from third
parties for purchased accounts receivable in the amount of $189,197 under an
account receivable finance agreement dated February 5, 2004 entered into with
us. As of such date, Spotless had purchased from us an aggregate amount of
$4,991,252 of our accounts receivable at an aggregate discount of $911,202, for
an aggregate purchase price of $4,080,050. Pursuant to the account receivable
finance agreement, Spotless was able to purchase certain of our accounts
receivable without recourse for cash, subject to certain terms and conditions.
Pursuant to an administrative services arrangement, Spotless also provided us
with certain administrative services. During our fiscal years 2005, 2004 and
2003, we were charged by Spotless an administrative fee of $84,138, $131,556 and
$101,256, respectively, of which $84,138 remained unpaid and was included in
accrued expenses as of June 28, 2005.

            On June 30, 2005, we completed a financing transaction, in which we
sold the Note to Laurus. The sale of the Note was completed pursuant to a
securities purchase agreement, as amended, and related documents, dated June 30,
2005. $2,750,000 of the proceeds from this transaction were used to satisfy all
of our financial obligations to Spotless, including the Spotless Loan.


                                       47



            We also issued a subordinated secured promissory note to Spotless in
the principal amount of $500,000, bearing interest at LIBOR plus 1%. Pursuant to
the terms of the note we issued to Spotless, amortized payments of $50,000 per
month become due and payable beginning July 1, 2007 until all amounts due
thereunder are fully paid, so long as we are not in default on the note we
issued to Laurus. The note we issued to Spotless, together with the $2,750,000
payment to Spotless referred to above, fully satisfied all of our financial
obligations to Spotless. In connection with this financing transaction, we,
along with Spotless, terminated the account receivable finance agreement, except
with respect to our 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 us an account receivable with a balance of
$189,197 and we agreed to pay this amount to Spotless. In addition, Spotless
agreed to forgive the $84,138 in administrative fees that was outstanding.

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

            o     administration;

            o     accounting, finance and risk management; and

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

during a six-month transitional process for a fee of $5,000 per month and a
payment of $25,000 to Mr. Murphy at the end of the transitional period.

            On June 30, 2005, Spotless, through one of its wholly owned
subsidiaries, sold 15,469,964 shares of our common stock to Michael O'Reilly,
our 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 of our common stock to us for
cancellation.

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

            In addition, we issued an option exercisable at $.09 per share to
Mr. O'Reilly to purchase 15,469,964 shares of our 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 former employment
                  agreement requiring us, under certain circumstances, to buy
                  his shares of our common stock and shares underlying his
                  vested options, and (b) calls for a base salary of $285,000
                  per year and a bonus equal to 2.5% of our pre-tax income, as
                  defined in the employment agreement; and

            o     agreement to personally guarantee our bonding obligations,

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

            On March 13, 2006, the Compensation Committee of our company
approved an increase in Mr. O'Reilly's base salary to $342,000 per year. In
addition, in lieu of the bonus provided by the Employment Agreement, we agreed
to pay Mr. O'Reilly an annual bonus for each fiscal year, commencing with the
fiscal year ending in June 2006, in an amount equal to 5% of EBITDA (Earnings
Before Interest, Taxes, Depreciation and Amortization) determined in accordance
with Generally Accepted Accounting Principles and calculated without taking into
account any payments made by us to Laurus. The amount of such bonus and the date
of payment shall be authorized by the Compensation Committee within 90 days
after the end of each fiscal year. An amendment to Mr. O'Reilly's employment
agreement, effective as of March 13, 2006, was executed by Mr. O'Reilly and us
to reflect these revisions to compensation.


                                       48



            On May 24, 2005, we issued non-plan five-year options exercisable at
$.01 per share and $0.1875 per share to Michael O'Reilly to purchase 2,000,000
and 250,000 shares of our common stock, respectively, in an effort to continue
incentivizing him in his capacity as our president and chief executive officer.
We recorded these options based on the intrinsic value method and recognized an
expense of $100,000 in connection therewith pursuant to APB No. 25.

            On June 30, 2005, we issued ten-year options exercisable at $.09 per
share to our series A convertible preferred stockholders, including Dr. Kevin J.
Phillips, one of our directors, to purchase an aggregate of 500,000 shares of
our common stock. We also agreed to pay to our series A convertible preferred
stockholders, out of legally available funds, accrued and unpaid dividends in an
aggregate of (a) $35,000 on each June 30, 2005, September 30, 2005 and December
30, 2005 and (b) $50,000 on February 28, 2007 in consideration for their
agreement to:

            o     propose and vote in favor of an amendment to our certificate
                  of incorporation in order to accommodate the full issuance of
                  the shares of our common stock underlying the Note and the
                  Initial Option and warrant we issued to Laurus;

            o     postpone their right, upon six months' notice after February
                  2007, to require us to redeem their series A convertible
                  preferred stock, until the earlier of six months after the
                  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 the 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
                  issued to Laurus.

            On June 30, 2005, Michael O'Reilly and the series A convertible
preferred stock stockholders, including Dr. Kevin J. Phillips, who is one of our
directors, agreed, pursuant to a forebearance and deferral agreement to which we
are a party, to propose and vote in favor of an amendment to our certificate of
incorporation in order to accommodate the full issuance of the shares of our
common stock underlying the Note and the Initial Option and warrant we issued to
Laurus. In addition, Mr. O'Reilly, the series A convertible preferred stock
stockholders and Anthony P. Towell, one of our directors, entered into lock-up
agreements with Laurus that prohibit a disposition of their shares of our common
stock and any and all related derivative securities until the earlier of the
repayment in full of the Note or June 30, 2010. On December 6, 2004, we issued a
ten-year option to Dr. Kevin J. Phillips to purchase 100,000 shares under our
2001 equity incentive plan in connection with his service as one of our
directors.

            During our fiscal year ended July 1, 2003, we repaid a $100,000
convertible note held by Anthony P. Towell, one of our directors. This note was
issued in 1997, provided for interest at a rate equal to 12% per annum and was
convertible at a rate of $.15 per share of our common stock. On May 24, 2005, we
issued a non-plan ten-year option exercisable at $.06 per share to Mr. Towell to
purchase 250,000 shares in connection with his service on our then-existing
special committee of our board of directors. On December 6, 2004, we issued a
ten-year option exercisable at $.035 per share to Mr. Towell under our 2001
equity incentive plan in connection with his service as one of our directors.

            On October 29, 1999, we entered into a subscription agreement with
Spotless Plastics (USA), Inc., a Delaware corporation, pursuant to which we sold
to Windswept Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Spotless:

            o     22,284,683 shares of our common stock, par value $.0001 per
                  share; and

            o     9,346 shares of series B convertible preferred stock, par
                  value $.01 per share, for an aggregate subscription price of
                  $2,500,000 or $.07904 per share of our common stock and $79.04
                  per share of series B preferred stock.

            Each share of series B preferred stock had the equivalent voting
power of 1,000 shares of our common stock and was convertible into 1,000 shares
of our common stock.


                                       49



            In October 1999, we, Trade-Winds and North Atlantic, as joint and
several obligors, borrowed $2,000,000 from Spotless. This borrowing was
evidenced by a secured convertible promissory note, dated October 29, 1999.
Outstanding principal under this note bore interest at a rate equal to the
London Interbank Offering Rate plus an additional 1% and was payable monthly.
The note had a maturity date of October 29, 2004, unless Spotless elected to
defer repayment until October 29, 2005. The outstanding principal amount and all
accrued and unpaid interest under this note was convertible, at the option of
Spotless, in whole or in part, at any time, into shares of our common stock at
the rate of one share of our common stock for every $.07904 of principal and
accrued interest so converted (or, in the event that certain approvals were not
obtained at the time of conversion, into shares of series B preferred stock at
the rate of one share of series B preferred stock for every $79.04 of principal
and accrued interest so converted). In connection with the note, each of the
obligated parties granted to Spotless a security interest in all of their
respective assets pursuant to a security agreement dated October 29, 1999.

            On November 16, 2001, Windswept Acquisition Corp. exercised its
right to convert all 9,346 shares of our series B preferred stock. As a result
of such conversion and in accordance with the terms of our series B preferred
stock, Windswept Acquisition Corp. was issued 10,495,174 shares of our common
stock. Such amount included 9,346,000 shares as a result of the 1,000:1
conversion ratio, and an additional 1,149,174 shares that were calculated based
upon a formula that took into consideration the value of the series B preferred
stock on the date of issuance and the number of days elapsed from the date of
the issuance of the series B preferred stock through the conversion date. The
issuance of the additional shares of common stock was recorded as a dividend of
$390,719. The dividend represented the difference between the fair market value
of our common stock issued on November 16, 2001 and the fair market value of our
common stock at the date the series B preferred stock was issued.

            On November 16, 2001, Spotless exercised its right to convert all
principal and accrued and unpaid interest on the $2,000,000 note. As a result of
the conversion of the note and accrued and unpaid interest:

            o     we issued an additional 28,555,250 shares of our common stock
                  to Windswept Acquisition Corp. in full satisfaction of the
                  note and the related accrued and unpaid interest; and

            o     an option that we granted to our president and chief executive
                  officer in October 1999 to purchase 2,811,595 shares of our
                  common stock at an exercise price of $.079 per share became
                  fully vested and exercisable.

            On February 5, 2004, we entered into an account receivable finance
agreement with Spotless pursuant to which Spotless purchased certain of our
accounts receivable without recourse for cash, subject to certain terms and
conditions. Pursuant to the account receivable finance agreement, Spotless had
the ability, but not the obligation to, purchase one or more of our accounts
receivable, that were approved by Spotless, in its sole discretion, in respect
of the particular debtor, invoices and related credit. As part of the agreement,
Spotless could purchase accounts receivable at a 15% discount, as adjusted by
Spotless in its sole discretion, to invoice prices, which we believed was at
least as favorable to us as would have been available from an unaffiliated
third-party, based upon a good-faith estimate of an applicable discount
negotiated at arm's length. In this regard, all of the accounts receivable
purchased by Spotless were so purchased at a 15% discount except one with an
invoice price of $1,028,194, which was purchased at a 31% discount on April 29,
2004, given certain factors, including anticipated slower collections associated
with the particular account debtor. In addition, we paid monthly discount fees
on any purchased accounts receivable based upon invoice prices. Spotless
purchased accounts receivable in the aggregate face amount of $4,991,252 from us
for an aggregate purchase price of $4,080,050. The difference between the
aggregate face amount and the aggregate purchase price, representing the
purchase discounts and the monthly discount fees were treated as purchase
discount and financing fees paid to related party. The aggregate amount of the
purchase discounts and monthly discount fees under this agreement were $808,519
for the fiscal year ending June 29, 2004 and $255,585 for the fiscal year ending
June 28, 2005. Further, we managed all accounts receivable that we sold to
Spotless while remitting to Spotless any proceeds received, and we bear all
related litigation costs. As of June 30, 2006, we continued to manage
approximately $189,197 of accounts receivable which had been sold to Spotless.

            On December 16, 1998, we entered into an operating lease agreement
with Michael O'Reilly, our 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, we lease 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 us with our largest floating vessel capable of
handling specialty equipment and facilitating an offshore support crew. We are
responsible for all taxes, insurance and repairs pertaining to this boat.


                                       50



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

            In February 1997, we issued 650,000 shares of redeemable convertible
preferred stock to Dr. Kevin J. Phillips, one of our directors and an additional
650,000 shares of redeemable convertible preferred stock to a business partner
of Dr. Phillips. During fiscal years 2006, 2005, and 2004, we paid an aggregate
of $0, $0, and $39,000, respectively, of dividends and accrued interest to the
redeemable convertible preferred stockholders.

            We believe that all of the transactions that we have entered into
with our officers, directors and principal stockholders, except our provision of
mitigation and restoration services at the condominium owned by our president
and chief executive officer as discussed above, have been on terms no less
favorable to us than those available from unrelated third parties.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

            Holtz Rubinstein Reminick LLP provided audit services for us for our
fiscal year ended June 30, 2006. The aggregate fees billed by Holtz Rubinstein
Reminick LLP for the audit of our annual financial statements and review of our
financial statements included in our Forms 10-Q and services normally provided
by the accountant in connection with statutory and regulatory filings and
engagements were $125,000 for our fiscal year ended June 30, 2006.

            Massella and Associates, CPA, PLLC provided audit services for us
for our fiscal year ended June 28, 2005. The aggregate fees billed by Massella &
Associates, CPA, PLLC for the audit of our annual financial statements and
review of our financial statements included in our Forms 10-Q and services
normally provided by the accountant in connection with statutory and regulatory
filings and engagements were $125,000 for fiscal year ended June 28, 2005.

Audit-Related Fees

            There were no fees billed in our fiscal year ended June 30, 2006 for
assurance and related services by Holtz Rubinstein Reminick LLP that are
reasonably related to the audit or review of our financial statements and that
were not covered in the audit fees disclosure above.

            There were no fees billed in our fiscal year ended June 28, 2005 for
assurance and related services by Massella & Associates, CPA, PLLC that are
reasonably related to the audit or review of our financial statements and that
were not covered in the audit fees disclosure above.

Tax Fees

            There were no fees billed for our fiscal year ended June 30, 2006
for any professional tax advice or tax planning services rendered by Holtz
Rubinstein Reminick LLP.

            There were no fees billed for our fiscal year ended June 28, 2005
for any professional tax advice or tax planning services rendered by Massella &
Associates, CPA, PLLC.


                                       51



All Other Fees

            There were no fees billed for the fiscal year ended June 30, 2006
for professional services rendered by Holtz Rubinstein Reminick LLP for all
other services not disclosed above.

            There were no fees billed for the fiscal years ended June 28, 2005
for professional services rendered by Massella & Associates, CPA, PLLC for all
other services not disclosed above.

Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of
Independent Auditors

            All services provided by our independent auditors are subject to the
pre-approval of the audit committee. This includes audit services, audit-related
services, tax services and other services. The audit committee has delegated to
its individual members the authority to pre-approve non-audit services, and such
pre-approvals are then communicated to the audit committee at its next meeting.

                                       52


                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)   (1)   Our financial statements together with a separate table of contents
            are annexed hereto.

      (2)   Financial Statement Schedules are listed in the separate table of
            contents annexed hereto.

      (3)   Exhibits.

      3.1   Amended and Restated Certificate of Incorporation of Windswept filed
            with the Delaware Secretary of State on March 3, 1995 (Incorporated
            by reference to Exhibit 3.1 of Windswept's Registration Statement on
            Form S-1/A filed with the SEC on February 3, 2006).

      3.2   Certificate of Designations of Series A Convertible Preferred Stock
            filed with the Delaware Secretary of State on February 28, 1997
            (Incorporated by reference to Exhibit 3.2 of Windswept's
            Registration Statement on Form S-1/A filed with the SEC on February
            3, 2006).

      3.3   Certificate of Amendment to the Certificate of Incorporation of
            Windswept filed with the Delaware Secretary of State on March 20,
            1997 (Incorporated by reference to Exhibit 3.04 of the Company's
            Annual Report on Form 10-KSB (Date of Report: April 30, 1997) filed
            with the SEC on October 3, 1997).

      3.4   Certificate of Designations of Series B Preferred Stock
            (Incorporated by reference to Exhibit 3.1 of the Company's Current
            Report on Form 8-K (Date of Report: October 29, 1999) filed with the
            SEC on November 12, 1999).

      3.5   Certificate of Amendment to the Certificate of Incorporation of
            Windswept filed with the Delaware Secretary of State on September
            18, 2000 (Incorporated by reference to Exhibit 3.5 of Windswept's
            Registration Statement in Form S-1/A filed with the SEC on February
            3, 2006).

      3.6   Certificate of Amendment to the Certificate of Incorporation of
            Windswept filed with the Delaware Secretary of State on March 15,
            2001 (Incorporated by reference to Exhibit 3.6 of Windswept's
            Registration Statement on Form S-1/A filed with the SEC on February
            3, 2006).

      3.7   By-laws of Windswept. (Incorporated by reference to Exhibit 3.3 of
            the Company's Registration Statement (No. 33-14370 N.Y.) filed with
            the SEC on June 1, 1987).

      4.1   Specimen Common Stock Certificate. (Incorporated by reference to
            Exhibit 4.01 of Windswept's Annual Report on Form 10-KSB for the
            fiscal year ended April 30, 1998, filed with the SEC on August 13,
            1998).

                                       53


      10.1  Option Certificate for 2,000,000 stock options issued to Michael
            O'Reilly. (Incorporated by reference to Exhibit 4.05 of Windswept's
            Annual Report on Form 10-KSB for the fiscal year ended April 30,
            1997, filed with the SEC on October 3, 1997).

      10.2  1997 Incentive Plan. (Incorporated by reference to Exhibit 4.1 of
            Windswept's Registration Statement on Form S-8 (No. 333-22491) filed
            with the SEC on February 27, 1997).

      10.3  1998 Stock Incentive Plan. (Incorporated by reference to Exhibit 4.1
            of Windswept's Registration Statement on Form S-8 (No. 333-61905)
            filed with the SEC on August 20, 1998).

      10.4  2001 Equity Incentive Plan. (Incorporated by reference to Exhibit
            10.1 of Windswept's Quarterly Report on Form 10-Q for the quarter
            ended January 31, 2001, filed with the SEC on March 19, 2001).

      10.5  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).

      10.6  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 the Company's Current Report on Form
            8-K (Date of Report: June 30, 2005) filed with the SEC on July 7,
            2005).

      10.7  Option to purchase 2,000,000 shares of common stock dated May 24,
            2005, issued by Windswept to Michael O'Reilly (Incorporated by
            reference to Exhibit 10.8 of Windswept's Annual Report on Form 10-K
            for the fiscal year ended June 28, 2005, filed with the SEC on
            October 3, 2005).

      10.8  Option to purchase 250,000 shares of common stock dated May 24,
            2005, issued by Windswept to Michael O'Reilly (Incorporated by
            reference to Exhibit 10.9 of Windswept's Annual Report on Form 10-K
            for the fiscal year ended June 28, 2005, filed with the SEC on
            October 3, 2005).

      10.9  Option to purchase 250,000 shares of common stock dated May 24,
            2005, issued by Windswept to Tony Towell (Incorporated by reference
            to Exhibit 10.10 of Windswept's Annual Report on Form 10-K for the
            fiscal year ended June 28, 2005, filed with the SEC on October 3,
            2005).

      10.10 Option to purchase 100,000 shares of common stock dated December 6,
            2004, issued by Windswept to Tony Towell (Incorporated by reference
            to Exhibit 10.11 of Windswept's Annual Report on Form 10-K for the
            fiscal year ended June 28, 2005, filed with the SEC on October 3,
            2005).

      10.11 Stock Option Agreement dated October 29, 1999 between the Company
            and Michael O'Reilly. (Incorporated by reference to Exhibit 10.5 of
            the Company's Current Report on Form 8-K (Date of Report: October
            29, 1999) filed with the SEC on November 12, 1999).

      10.12 Stock Option Agreement dated October 29, 1999 between the Company
            and Michael O'Reilly relating to options vesting upon exercise of
            the convertible note. (Incorporated by reference to Exhibit 10.6 of
            the Company's Current Report on Form 8-K (Date of Report: October
            29, 1999) filed with the SEC on November 12, 1999).

      10.13 Option to purchase 100,000 shares dated December 6, 2004, issued by
            Windswept to Dr. Kevin Phillips (Incorporated by reference to
            Exhibit 10.14 of Windswept's Annual Report on Form 10-K for the
            fiscal year ended June 28, 2005, filed with the SEC on October 3,
            2005).

                                       54


      10.14 Account Receivable Finance Agreement, dated February 5, 2004, by and
            among the Company, Trade-Winds Environmental Restoration, Inc. and
            Spotless Plastics (USA) Inc. (Incorporated by reference to Exhibit
            10.1 of the Company's Quarter Report on Form 10-Q for the quarter
            ended December 30, 2003, filed with the SEC on February 10, 2004).

      10.15 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 the Company's Current
            Report on Form 8-K (Date of Report: June 30, 2005) filed with the
            SEC on July 7, 2005).

      10.16 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).

      10.17 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 the Company's Current Report on Form
            8-K (Date of Report: June 30, 2005) filed with the SEC on July 7,
            2005).

      10.18 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).

      10.19 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).

      10.20 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
            the Company's Current Report on Form 8-K (Date of Report: June 30,
            2005) filed with the SEC on July 7, 2005).

      10.21 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 the Company's Current Report on Form
            8-K (Date of Report: June 30, 2005) filed with the SEC on July 7,
            2005).

      10.22 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 the Company's Current Report on Form 8-K (Date of
            Report: June 30, 2005) filed with the SEC on July 7, 2005).

      10.23 Forebearance 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 the Company's Current Report on Form 8-K (Date of
            Report: June 30, 2005) filed with the SEC on July 7, 2005).

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

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

      10.26 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 the Company's Current Report on Form 8-K (Date
            of Report: June 30, 2005) filed with the SEC on July 7, 2005).

                                       55


      10.27 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 the Company's Current Report on Form
            8-K (Date of Report: June 30, 2005) filed with the SEC on July 7,
            2005).

      10.28 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 the Company's Current Report on Form
            8-K (Date of Report: June 30, 2005) filed with the SEC on July 7,
            2005).

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

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

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

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

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

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

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

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

      10.37 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 the Company's Current Report on Form 8-K (Date of
            Report: June 30, 2005) filed with the SEC on July 7, 2005).

      10.38 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).

      10.39 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).

      10.40 Amendment and Fee Waiver Agreement, dated as of November 23, 2005,
            by and between Windswept and Laurus (Incorporated by reference to
            Exhibit 10.01 of Windswept's Current Report on Form 8-K/A (Date of
            Report: November 23, 2005) filed with the SEC on January 17, 2006).

                                       56


      10.41 Amendment and Fee Waiver Agreement, dated as of January 13, 2006, by
            and between Windswept and Laurus (Incorporated by reference on
            Exhibit 10.01 of Windswept's Current Report on Form 8-K (Date of
            Report: January 13, 2006) filed with the SEC on January 17, 2006).

      10.42 Amendment and Fee Waiver Agreement, dated as of February 28, 2006,
            by and between Windswept and Laurus (Incorporated by reference to
            Exhibit 10.01 of Windswept's Current Report on Form 8-K (Date of
            Report: February 28, 2006) filed with the SEC on March 2, 2006).

      10.43 Amendment and Fee Waiver Agreement, dated as of March 20, 2006, by
            and between Windswept and Laurus (Incorporated by reference to
            Exhibit 10.01 of Windswept's Current Report on Form 8-K (Date of
            Report: March 20, 2006) filed with the SEC on March 22, 2006).

      10.44 Amendment No. 1 to Employment Agreement, effective as of March 13,
            2006, between Windswept and Michael O'Reilly. (Incorporated by
            reference to Exhibit 10.1 of Windswept's Current Report on Form
            8-K/A (Date of Report: April 13, 2006) filed with the SEC on April
            17, 2006.

      10.45 Amendment and Fee Waiver Agreement, dated May 11, 2006, 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: May
            11, 2006) filed with the SEC on May 17, 2006).

      10.46 Amendment and Fee Waiver Agreement, dated June 12, 2006, 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
            12, 2006) filed with the SEC on June 13, 2006).

      10.47 Amendment and Fee Waiver Agreement, dated June 30, 2006, 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, 2006) filed with the SEC on July 6, 2006).

      10.48 Amendment and Fee Waiver Agreement, dated July 21, 2006, 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: July
            21, 2006) filed with the SEC on July 25, 2006).

      10.49 Amendment and Fee Waiver Agreement, dated August 25, 2006, 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:
            August 25, 2006) filed with the SEC on August 30, 2006).

      10.50 Omnibus Amendment, dated September 29, 2006, between Windswept and
            Laurus (Incorporated by reference to Exhibit 10.1 of Windswept's
            Current Report on Form 8-K (Date of Report: September 29, 2006)
            filed with the SEC on October 5, 2006).

      10.51 Amended and Restated Secured Convertible Term Note, dated September
            29, 2006, issued by the Company to Laurus (Incorporated by reference
            to Exhibit 10.2 of Windswept's Current Report on Form 8-K (Date of
            Report: September 29, 2006) filed with the SEC on October 5, 2006).

      10.52 Option, dated September 29, 2006, to purchase 11,145,000 shares of
            common stock issued by Windswept to Laurus (Incorporated by
            reference to Exhibit 10.3 of Windswept's Current Report on Form 8-K
            (Date of Report: September 29, 2006) filed with the SEC on October
            5, 2006).

      21.1  Subsidiaries of the Company.

      23.1  Consent of Holtz Rubinstein Reminick LLP.

      23.2  Consent of Massella & Associates, CPA, PLLC.

                                       57


      23.3  Consent of Deloitte & Touche LLP.

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

      31.2  Certification of the Chief Financial Officer of the Company pursuant
            to Sarbanes-Oxley Section 302(a).

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

(b)         Exhibits: See Index of Exhibits.

(c)         Financial Statement Schedules: The response to this portion of Item
            15 is submitted as a separate section of this report.


                                       58



                       WINDSWEPT ENVIRONMENTAL GROUP, INC.
                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
Reports of Independent Registered Public Accounting Firms................    F-2
Consolidated Balance Sheets as of June 30, 2006 and June 28, 2005........    F-5
Consolidated Statements of Operations for the fiscal years ended
  June 30, 2006, June 28, 2005 (Restated), and June 29, 2004 (Restated)..    F-6
Consolidated Statements of Stockholders' Deficiency for the fiscal years
  ended June 30, 2006, June 28, 2005, and June 29, 2004..................    F-7
Consolidated Statements of Cash Flows for the fiscal years ended
  June 30, 2006, June 28, 2005, and June 29, 2004 (Restated).............    F-8
Notes to Consolidated Financial Statements...............................    F-9


                                       F-1



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and
Stockholders of Windswept Environmental Group, Inc.
Bay Shore, New York

We have audited the accompanying consolidated statement of operations and
statement of cash flows of Windswept Environmental Group, Inc. and subsidiaries
(the "Company") for the year ended June 29, 2004. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of their operations and their cash flows for the
fiscal year ended June 29, 2004, in conformity with accounting principles
generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has incurred recurring losses
from operations, has a working capital deficit and 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 4. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

As discussed in the second paragraph of Note 2, the accompanying 2004
consolidated statement of operations and statement of cash flows have been
restated.

/s/ Deloitte & Touche LLP
Jericho, New York
September 24, 2004
(November 13, 2006 as to the effects of the restatement discussed in the second
paragraph of Note 2)


                                       F-2



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Windswept Environmental Group, Inc.
Bay Shore, New York

We have audited the accompanying consolidated balance sheets of Windswept
Environmental Group, Inc. and subsidiaries (the "Company") as of June 28, 2005,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the fiscal year ended June 28, 2005. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of June 28, 2005 and
the results of operations and cash flows for the fiscal years ended June 28,
2005, in conformity with accounting principles generally accepted in the United
States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has incurred recurring losses
from operations, has a working capital deficit and 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 mattters are also described in Note 4. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

As discussed in Note 3 to the financial statements, on June 30, 2005, the
Company was recapitalized after completing a financing transaction in which it
issued a secured convertible term note which resulted in the repayment of its
secured note payable-related party and a change of control of the Company.


/s/ Massella & Associates, CPA, PLLC
Massella & Associates, CPA, PLLC
Syosset, New York
September 13, 2005, except for Note 2, which is as of November 13, 2006

                                       F-3



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Windswept Environmental Group, Inc.

We have audited the accompanying consolidated balance sheet of Windswept
Environmental Group, Inc. and Subsidiaries (the "Company") as of June 30, 2006,
and the related consolidated statements of operations, stockholders' deficiency,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
June 30, 2006, and the results of their operations and their cash flows for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.


/s/ HOLTZ RUBENSTEIN REMINICK LLP
Holtz Rubenstein Reminick LLP
Melville, New York
September 6, 2006


                                       F-4



                         PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

              WINDSWEPT ENVIRONMENTAL GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                         JUNE 30, 2006 and JUNE 28, 2005



                                                                              June 30,        June 28,
                                                                                2006            2005
                                                                            ------------   -------------
                                                                                      
ASSETS:
CURRENT ASSETS:
  Cash                                                                      $    610,884    $    512,711
  Accounts receivable, net of allowance for doubtful accounts
    of $1,962,138 and $1,507,831, respectively                                11,235,904       6,755,338
  Inventory                                                                      211,058         146,079
  Costs and estimated earnings in excess of billings on
    uncompleted contracts                                                         71,720          30,466
  Prepaid expenses and other current assets                                      204,832          47,253
                                                                            ------------    ------------
  Total current assets                                                        12,334,398       7,491,847
                                                                            ------------    ------------
PROPERTY AND EQUIPMENT, net of accumulated
  depreciation and amortization of $7,178,262
  and $6,386,731, respectively                                                 2,919,876       2,242,645
OTHER ASSETS:
  Deferred financing costs                                                     2,372,662              --
  Other                                                                          167,220         322,046
                                                                            ------------    ------------
  Total other assets                                                           2,539,882         322,046
                                                                            ------------    ------------
TOTAL                                                                       $ 17,794,156    $ 10,056,538
                                                                            ============    ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
CURRENT LIABILITIES:
  Accounts payable                                                          $  1,011,700    $  1,174,840
  Liability for repurchased account receivable                                   189,197              --
  Accrued expenses                                                             1,569,993       1,611,256
  Secured note payable to a related party                                             --       5,000,000
  Billings in excess of costs and estimated earnings on
    uncompleted contracts                                                         42,400          83,316
  Accrued payroll and related fringe benefits                                    429,717         528,867
  Current maturities of long-term debt                                           188,310         169,612
  Income taxes payable                                                         1,838,509         138,579
  Derivative liabilities: notes, warrants and options                         27,163,901              --
  Other current liabilities                                                      121,533         489,468
                                                                            ------------    ------------
  Total current liabilities                                                   32,555,260       9,195,938
                                                                            ------------    ------------
LONG-TERM DEBT:
  Secured note payable                                                           500,000              --
  Other                                                                          188,244         197,400
                                                                            ------------    ------------
      Total long-term debt                                                       688,244         197,400
                                                                            ------------    ------------
COMMITMENTS AND CONTINGENCIES
Redeemable Common Stock                                                               --          76,089
                                                                            ------------    ------------
SERIES A REDEEMABLE CONVERTIBLE PREFERRED
  STOCK, $.01 par value; 1,300,000 shares authorized, issued and
  and outstanding at June 30, 2006 and June 28, 2005                           1,300,000       1,300,000
                                                                            ------------    ------------
STOCKHOLDERS' DEFICIENCY:
  Series B preferred stock, $.01 par value; 50,000 shares
    authorized; 0 shares issued and outstanding at June 30, 2006
    and June 29, 2005                                                                 --              --
  Nondesignated preferred stock, no par value; 8,650,000 shares
    authorized; 0 shares issued and outstanding at June 30, 2006 and
    June 28, 2005                                                                     --              --
  Common stock, $.0001 par value; 150,000,000 shares
    authorized; 33,571,215 shares issued and outstanding at June 30, 2006
    and 77,936,358 shares issued and outstanding at June 28, 2005                  3,357           7,794
  Additional paid-in-capital                                                  38,429,185      33,944,017
  Accumulated deficit                                                        (55,181,890)    (34,664,700)
                                                                            ------------    ------------
      Total stockholders' deficiency                                         (16,749,348)       (712,889)
                                                                            ------------    ------------
TOTAL                                                                       $ 17,794,156    $ 10,056,538
                                                                            ============    ============


See notes to consolidated financial statements.


                                       F-5



              WINDSWEPT ENVIRONMENTAL GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
    FOR THE FISCAL YEAR ENDED JUNE 30, 2006, JUNE 28, 2005 AND JUNE 29, 2004



                                                                            Fiscal Year Ended
                                                              --------------------------------------------
                                                                  June          June 28         June 29
                                                                  2006            2005           2004
                                                              ------------   -------------   -------------
                                                                             (As restated-   (As restated-
                                                                              See Note 2)     See Note 2)
                                                                                     
Revenues                                                      $ 32,644,415    $20,640,410     $19,166,753
Cost of revenues                                                18,877,957     15,176,735      17,442,059
Gross profit                                                    13,766,458      5,463,675       1,724,694
Operating expenses (income):
  Selling, general and administrative expenses                   8,465,039      4,884,972       5,348,524
  Benefit expenses related to variable accounting treatment
    for officer options and redeemable common stock                     --        176,089        (348,626)
      Total operating expenses                                   8,465,039      5,061,061       4,999,898
Income (Loss) from operations                                    5,301,419        402,614      (3,275,204)
Other expense (income):
  Interest expense                                               6,678,735        108,265         115,942
  Purchase discounts & financing fees paid to related party             --        255,585         808,519
  Other expense (income), net                                       (8,905)       (51,629)        (29,386)
  Mark -to- market loss in embedded derivative liabilities      19,373,659             --              --
  Gain on extinguishment of embedded derivatives                (2,780,490)            --              --
  Loss on exercise of options on embedded derivatives              449,850             --              --
      Total other expense (income)                              23,712,849        312,221         895,075
(Loss) income before provision/(benefit) for income taxes      (18,411,430)        90,393      (4,170,279)
Provision (benefit) for income taxes                             2,105,760         37,327        (634,945)
Net (loss) income                                              (20,517,190)        53,066      (3,535,334)
Dividends on preferred stock                                        78,000         78,000          78,000
Net loss attributable to common shareholders                  $(20,595,190)   $   (24,934)    $(3,613,334)
Basic and diluted net loss per common share:
  Basic                                                       $      (0.61)   $      0.00     $     (0.05)
  Diluted                                                     $      (0.61)   $      0.00     $     (0.05)
Weighted average number of common shares outstanding:
  Basic                                                         33,510,535     77,936,358      77,936,558
  Diluted                                                       33,510,535     77,936,358      77,936,358


See notes to consolidated financial statements.


                                       F-6



WINDSWEPT ENVIRONMENTAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY



                                                                     Common Stock
                                                              -------------------------    Additional
                                                               Number of                    Paid-in      Accumulated
                                                                 Shares      Par Value      Capital        Deficit        Total
                                                              -----------   -----------   -----------   ------------   ------------
                                                                                                        
Balance at July 1, 2003                                        77,936,358   $     7,794   $34,000,017   $(31,182,432)  $  2,825,379
Dividends on Series A Preferred Stock                                  --            --       (78,000)            --        (78,000)
Net loss and comprehensive loss                                        --            --            --     (3,535,334)    (3,535,334)
                                                              -----------   -----------   -----------   ------------   ------------
Balance at June 29, 2004                                       77,936,358         7,794    33,922,017    (34,717,766)      (787,955)
Options issued for Compensation                                        --            --       100,000             --        100,000
Dividends on Series A Preferred Stock                                  --            --       (78,000)            --        (78,000)
Net income and comprehensive income                                    --            --            --         53,066         53,066
                                                              -----------   -----------   -----------   ------------   ------------
Balance at June 28, 2005 (restated)                            77,936,358         7,794    33,944,017    (34,664,700)      (712,889)
Laurus Financing:
  Assumed exercise of shares available for nominal
    consideration, including partial actual exercise to
    purchase 1,500,000 shares                                   1,500,000           150            --             --            150
  Loss on 1,500,000 options                                            --            --       584,850             --        584,850
  Tax effect on Laurus option exercise                                 --            --        72,767             --         72,767
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
Stock-based Compensation                                               --            --     1,450,389             --      1,450,389
Dividends on Series A preferred stock                                  --            --       (78,000)            --        (78,000)
Additional taxes attributable to cancellation of
  Spotless debt                                                        --            --       (96,100)            --        (96,100)
Net loss                                                               --            --            --    (20,517,190)   (20,517,190)
                                                              -----------   -----------   -----------   ------------   ------------
Balance at June 30, 2006                                       33,571,215   $     3,357   $38,429,185   $(55,181,890)  $(16,749,348)
                                                              ===========   ===========   ===========   ============   ============


See notes to consolidated financial statements.


                                       F-7


WINDSWEPT ENVIRONMENTAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JUNE 30,2006, JUNE 28,2005 AND JUNE 29,2004



                                                                             Fiscal Year     Fiscal Year     Fiscal Year
                                                                            Ended June 30   Ended June 28   Ended June 29
                                                                                 2006            2005            2004
                                                                            -------------   -------------   -------------
                                                                                                            (As restated-
                                                                                                             See Note 2)
                                                                                                    
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (loss) income                                                         $(20,517,190)     $  53,066      $(3,535,334)
  Adjustments to reconcile net (loss) income to net cash provided by
    (used in) operating activities:
    Depreciation and amortization                                                791,531        679,026          596,189
    Provision for doubtful accounts, net                                         454,307        818,691          286,336
    Compensation (benefit) related to option and redeemable common stock              --        176,089         (348,625)
    Amortization of deferred financing cost                                    1,181,868             --               --
    Other Loss on Derivatives                                                 19,373,659             --               --
    Loss on Exercise of Options                                                  449,850             --               --
    Gain on Extinguishment                                                    (2,780,490)            --               --
    Interest Expense - Embedded derivatives                                    4,019,982             --               --
    Interest Expense - Notes payable discount                                    713,865             --               --
    Stock - based compensation                                                 1,450,389             --               --
  Changes in operating assets and liabilities:
    Accounts receivable                                                       (4,745,676)      (921,223)      (1,057,539)
    Inventory                                                                    (64,979)         5,191           64,196
    Costs and estimated earnings in excess of billings on uncompleted
      contracts                                                                  (41,254)       577,581          263,706
    Prepaid expenses and other current assets                                   (157,579)       210,312           22,032
    Other assets                                                                 154,826       (198,389)        (100,530)
    Accounts payable and accrued expenses                                        (70,525)      (702,933)         691,007
    Accrued payroll and related fringe benefits                                  (99,150)      (395,858)         265,066
    Income tax payable                                                           944,957        650,939          567,826
    Other current liabilities                                                   (367,935)        22,376            2,406
    Billings in excess of costs and estimated earnings on uncompleted
      contracts                                                                  (40,916)      (156,195)         (59,916)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:                             649,540        818,673       (2,343,180)
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                                         (1,250,850)       (89,208)        (536,093)
NET CASH USED IN INVESTING ACTIVITIES                                         (1,250,850)       (89,208)        (536,093)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Principal payments of long-term debt (Laurus)                               (1,378,125)            --               --
  Principal payments of long-term debt to
    acquire property and equipment                                              (208,370)      (307,737)        (448,261)
  Proceeds from long-term debt                                                        --         27,421               --
  Proceeds from short-term note payable to a third party                              --             --        3,300,000
  Dividends on preferred stock                                                        --             --          (39,000)
  Exercise of stock options                                                          150             --               --
  Payments for deferred financing costs                                       (2,314,172)            --               --
  Repayment and cancellation of secured note payable to a related party       (2,750,000)            --               --
  Proceeds from secured notes payable                                          7,350,000             --               --
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                              699,483       (280,316)       2,812,739
NET INCREASE (DECREASE) IN CASH                                                   98,173        449,149          (66,534)
CASH - BEGINNING OF YEAR                                                         512,711         63,562          130,096
CASH - END OF YEAR                                                          $    610,884      $ 512,711      $    63,562
Cash paid during the year for:
  Interest                                                                  $    544,903      $ 111,012      $    45,146
  Income taxes                                                              $  1,160,332      $   1,305      $        --
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Recognition of embedded derivative liabilities                              $  7,655,242             --               --
Recognition of discount on secured convertible note                         $  5,971,875             --               --
Capitalized gain on extinguishment of secured note payable - related
  party                                                                     $  1,122,794             --               --
Financing cost related to guaranties of CEO remunerated through sale of
  discounted shares                                                         $  1,195,708             --               --
Property and equipment acquired through financing                           $    217,912             --          320,124
Account receivable repurchased in connection with refinancing               $    189,197             --               --
Paid-in capital arising from reduction in derivative option liability on
  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             --               --


See notes to consolidated financial statements


                                       F-8



              WINDSWEPT ENVIRONMENTAL GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE FISCAL YEARS ENDED JUNE 30, 2006, JUNE 28, 2005 AND JUNE 29, 2004

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

            Nature of Business

            Windswept Environmental Group, Inc. and its subsidiaries (the
            "Company") provides a full array of environmental services through
            vertically integrated businesses in the areas of hazardous waste
            remediation, asbestos removal, mold remediation, lead clean-up,
            emergency spill response and laboratory testing and training. In
            providing a turnkey environmental solution, the Company also
            provides demolition, renovation and other general construction
            services. The Company provides these services to a diversified
            customer base located primarily in the Northeastern United States.
            The Company's operations are conducted in a single business segment
            - environmental services.

            Basis of Presentation

            The accompanying consolidated financial statements include the
            accounts of Windswept Environmental Group, Inc. and its
            subsidiaries, Trade-Winds Environmental Restoration, Inc. and North
            Atlantic Laboratories, Inc. All intercompany accounts and
            transactions have been eliminated in consolidation.

            Use of Estimates

            The preparation of financial statements in conformity with
            accounting principles generally accepted in the United States of
            America requires management to make estimates and assumptions that
            effect the reported amounts of assets and liabilities, revenues and
            expenses as well as the disclosure of contingent assets and
            liabilities at the date of the financial statements. Actual results
            could differ from those estimates.

            Embedded Derivative Liabilities

            In order to calculate the derivative liabilities, the Company has
            projected the following factors over various periods through the
            June 30, 2008 original maturity date of the secured convertible note
            held by the Laurus Master Fund, Ltd. ("Laurus"):

                  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, the Company 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 the Company believes the variations in its
            stock price to be the most significant.

            In addition, at such time the Company achieves sufficient authorized
            common shares, the existing derivative liabilities will be credited
            to equity at their then measured values. The Company believes 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, the Company achieved having
            sufficient authorized shares as of that date. See Note 3.


                                      F-9



            Stock Based Transactions

            The Company consummated various transactions where it paid the
            consideration primarily in options or warrants to purchase its
            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 the Company's common stock are
            used as incentives for employees, officers or directors, the Company
            now uses the fair value method required by SFAS No. 123R. The
            accompanying financial statements reflect the adoption of this
            pronouncement as of the beginning of fiscal 2006, as required. Prior
            to the adoption of SFAS No. 123R, the Company disclosed the pro
            forma effects in accordance with SFAS No.123.

            The fair value of options or warrants to purchase the Company's
            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 determine market value as follows:

                  o     exercise price (the price to be paid for a share in the
                        Company's common stock);

                  o     price of the Company's common 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 the Company's common 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 risk free 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.

            The following table illustrates the effect on net (loss)
            attributable to common stockholders and net (loss) per share if the
            Company had applied the fair value recognition provision of SFAS 123
            "Accounting for Stock-Based Compensation," to stock based employee
            compensation for the fiscal years ended June 28, 2005 and June 29,
            2004.

                                    Fiscal Year   Fiscal Year
                                       Ended         Ended
                                      June 28,     June 29,
                                        2005          2004
                                    -----------   -----------
Net loss attributable to
  common shareholders, as
  reported                           $ (24,934)   $(3,613,334)
Add: Stock-based compensation
   included in income                  176,089       (348,626)
                                     ---------    -----------
Adjusted net income/(loss)             151,155     (3,961,960)
Less: Stock-based employee
  compensation-cost determined
  under the fair value method,
  net of related tax effects          (431,781)       208,507
                                     ---------    -----------
Pro forma net (loss) attributable
  to common shareholders             $(280,626)   $(3,753,453)
                                     =========    ===========
Net (loss) income per share:
  Basic - as reported                $     .00    $      (.05)
                                     =========    ===========
  Basic - pro forma                  $     .00    $      (.05)
                                     =========    ===========
  Diluted - as reported              $     .00    $      (.05)
                                     =========    ===========
  Diluted - pro forma                $     .00    $      (.05)
                                     =========    ===========


                                      F-10



            The weighted average fair value of options granted during the fiscal
            years ended June 28, 2005 and June 29, 2004 was estimated at $.20,
            and $.22, respectively, on the date of the grant.

            The fair value of these options was estimated using the
            Black-Scholes option pricing model with the following weighted
            average assumptions:

                                        Fiscal Year   Fiscal Year
                                           Ended         Ended
                                          June 28,     June 29,
                                            2005          2004
                                        -----------   -----------
                 Risk free rate                3.8%         3.3%
                 Dividend yield                  --           --
                 Volatility                    162%         149%
                 Expected Option Life    5-10 years      5 years

            Revenue Recognition

            Revenue derived from services provided to customers over period 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.


                                      F-11



            Revenues from time and material contracts that extend longer than
            one month are recognized as services are performed.

            Claims

            Revenue from claims, such as claims relating to disputed change
            orders, is recognized when realization is probably and the amount
            can be reliably estimated.

            In the fiscal year ended June 28, 2005, the Company recorded a
            settlement in connection with a claim of approximately $440,000 and
            recognized this amount as revenue.

            Inventory

            Inventory consists entirely of finished goods (materials and
            supplies utilized on the Company's remediation projects) and is
            recorded at the lower of cost (first-in, first-out) or market.

            Property and Equipment

            Property and equipment, consisting of machinery and equipment,
            office furniture and equipment, trucks and vehicles, and leasehold
            improvements are stated at cost. Depreciation is recorded on the
            straight-line method over the estimated useful lives of the assets.
            The Company depreciates small tools based on an estimated useful
            life of three years. The Company depreciates leasehold improvements,
            office furniture, trucks, other vehicles and telephone systems over
            the lesser of the term of the related lease or the estimated useful
            life of five years. The Company depreciates all other equipment,
            including project-specific and office-related equipment, including
            computer equipment, based on an estimated useful life of three to
            seven years. Long-lived assets, such as property and equipment, are
            reviewed for impairment when events or changes in circumstances
            indicate that the carrying amount of the assets may not be
            recoverable through the estimated future cash flows from the use of
            the assets. There were no impairment charges for the fiscal years
            ended June 30, 2006, June 28, 2005 and June 29, 2004.

            Allowance for Doubtful Accounts

            The Company has established an allowance for accounts receivable
            based upon factors such as the credit risk of specific customers,
            historical trends and other information.


                                      F-12



            The activity within the allowance for doubtful accounts for the
            fiscal years ended June 30, 2006, June 28, 2005 and June 29, 2004
            were as follows:

                                 Fiscal Year     Fiscal Year     Fiscal Year
                                    Ended           Ended           Ended
                                June 30, 2006   June 28, 2005   June 29, 2004
                                -------------   -------------   -------------
Balance, beginning of period      $1,507,831     $  689,140       $402,804
Charged to costs and expenses        342,341        806,000        323,384
Deductions                                --        (86,799)       (52,777)
Recoveries                           111,966         99,490         15,729
                                  ----------     ----------       --------
Balance, end of period            $1,962,138     $1,507,831       $689,140
                                  ==========     ==========       ========

            (Loss) Income Per Share

            The basic net (loss) income per share is computed using weighted
            average number of common shares outstanding for the applicable
            period. The diluted net (loss) income per share is computed using
            the weighted average number of common shares plus common equivalent
            shares outstanding, except if the effect on the per share amounts of
            including equivalents would be anti-dilutive.

            Income Taxes

            Deferred income taxes result from timing differences arising between
            financial and income tax reporting due to the deductibility of
            certain expenses in different periods for financial reporting and
            income tax purposes. A valuation allowance is provided against net
            deferred tax assets unless, in management's judgment, it is more
            likely than not that such deferred tax asset will be realized.

            The Company files a consolidated Federal income tax return.
            Accordingly, Federal income taxes are provided on the taxable
            income, if any, of the consolidated group. State franchise and
            income taxes are provided on a separate company basis, if and when
            taxable income, after utilizing available carry forward losses,
            exceeds certain levels.

            Fair Value of Financial Instruments

            As of June 30, 2006, the carrying value of cash, accounts
            receivable, accounts payable and notes payable and current
            maturities of long-term debt approximated fair value because of
            their short maturity. Based on a closing market price of the
            Company's common stock of $.42 at June 30, 2006 and the conversion
            provisions of the underlying instrument, the fair value of the
            Series A Redeemable Preferred Stock was $546,000. The Company
            believes that an undetermined discount for lack of liquidity would
            be appropriate due to the large amount of stock that would be
            issuable upon conversion.

            Fiscal Year

            Currently, the Company's fiscal year ends on June 30 and the fiscal
            quarters end on the last day in September, December and March,
            respectively. Through the fiscal year ended June 28, 2005, the
            Company had a 52-53 week fiscal year ending on the Tuesday nearest
            June 30. Each fiscal year was generally comprised of four 13-week
            quarters, each containing two four-week months followed by one
            five-week month.

            New Accounting Pronouncements

            In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
            Error Corrections," which (a) establishes, unless impracticable,
            retrospective application as the required method for reporting a
            change in accounting principle in the absence of explicit transition
            requirements specific to the newly adopted accounting principle, (b)
            addresses the reporting of a correction of any error by restating
            previously issued financial statements, and (c) is effective in
            fiscal years beginning after December 15, 2005.


                                      F-13



            In June 2006, the FASB issued FASB Interpretation No. 48,
            "Accounting for Uncertainty in Income Taxes- an interpretation of
            FASB Statement No. 109" ("FIN 48"). FIN 48 clarifies the accounting
            for uncertainty in income taxes by prescribing a recognition
            threshold and measurement attribute for the financial statement
            recognition and measurement of a tax position taken or expected to
            be taken in a tax return. The interpretation also provides guidance
            on derecognition, classification, interest and penalties, accounting
            in interim period and disclosure. FIN 48 is effective for fiscal
            years beginning after December 15, 2006. We are in the process of
            evaluating the impact FIN 48 will have on our consolidated financial
            statements.

2. RESTATEMENT OF FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 28, 2005
AND JUNE 29, 2004

            The consolidated statements of operations for the fiscal year ended
            June 28, 2005 have been restated to separately disclose related
            party transactions on the face of the financial statements. Purchase
            discounts and financing fees paid to a related party was broken out
            from interest expense, and have been adjusted on our statement of
            operations as follows:

                                As Previously   Restatement   As Restated
Financial Statement Caption       Presented      Adjustment      Herein
- -----------------------------   -------------   -----------   -----------
                                                  Increase
                                                 (Decrease)
Statement of Operations
Other expense (income):
 Interest expense                  363,850       (255,585)      108,265
 Purchase discounts &
   financing fees paid to
   related party                        --        255,585       255,585
                                   -------       --------       -------
Total other expense (income)       312,221             --       312,221
                                   -------       --------       -------

            The consolidated statements of operations and cash flows for the
            fiscal year ended June 29, 2004 have been restated to separately
            disclose related party transactions on the face of the financial
            statements and to reclassify fixed assets acquired through financing
            arrangements. Purchase discounts and financing fees paid to a
            related party was broken out from interest expense on the statement
            of operations. Assets acquired through financing arrangements were
            removed as an investing use of cash and as proceeds from the
            issuance of debt, to be separately disclosed as a non-cash activity
            on the statement of cash flows. The consolidated statement of
            operations and cash flows have been adjusted as follows:

                               As Previously   Restatement   As Restated
Financial Statement Caption      Presented      Adjustment      Herein
- -----------------------------  -------------   -----------   -----------
                                                Increase
                                               (Decrease)
Statement of Operations
Other expense (income):
 Interest expense                  924,461       (808,519)      115,942
 Purchase discounts &
   financing fees paid to
   related party                        --        808,519       808,519
                                   -------       --------       -------
Total other expense (income)       895,075             --       895,075
                                   -------       --------       -------


Statement of Cash Flows
- -----------------------
Cash Flows From
 Investing Activities
  Purchases of property
   and equipment                  (856,217)       320,124      (536,093)
Net Cash Used in
 Investing Activities             (856,217)       320,124      (536,093)
Cash Flows from
 Financing Activities
 Proceeds from long-term debt      320,124       (320,124)            -
Net Cash Provided by (Used In)
 Financing Activities            3,132,863       (320,124)    2,812,739
Supplemental Schedule of
 Non-Cash Activities
 Property and equipment
  acquired through financing             -        320,124       320,124

3. SALES OF CONTROLLING INTEREST AND REFINANCINGS

            On October 26, 1999, the Board of Directors of the Company created a
            class of 50,000 shares of preferred stock, par value $.01 per share,
            designated as the Series B Convertible Preferred Stock (the "Series
            B Preferred"). Each share of Series B Preferred had a liquidation
            preference of $79.04, was initially convertible into 1,000 shares of
            Common Stock, par value $.0001 per share, of the Company (the
            "Common Stock") (subject to adjustment) and was entitled to cast
            1,000 votes, together with the Common Stock and the Series A
            Convertible Preferred Stock, par value $.01 per share (the "Series A
            Preferred"), on any matters subject to a vote of the holders of the
            Common Stock.

            On October 29, 1999, the Company entered into a subscription
            agreement with Spotless Plastics (USA), Inc. ("Spotless"), a
            Delaware corporation, pursuant to which the Company issued to
            Windswept Acquisition Corporation ("Acquisition Corp."), a Delaware
            corporation and a wholly-owned subsidiary of Spotless, 22,284,683
            shares (the "Acquisition Corp. Common Shares") of Common Stock and
            9,346 shares of Series B Preferred, for an aggregate subscription
            price of $2,500,000 or $.07904 per share of Common Stock and $79.04
            per share of Series B Preferred.


                                      F-14



            In addition, the Company and its wholly-owned subsidiaries,
            Trade-Winds Environmental Restoration, Inc. and North Atlantic
            Laboratories, Inc., as joint and several obligors (collectively, the
            "Obligors"), borrowed $2,000,000 from Spotless. This borrowing was
            evidenced by a secured convertible promissory note, dated October
            29, 1999 (the "Spotless Note"). Outstanding principal under the
            Spotless Note bore interest at a rate equal to the London Interbank
            Offering Rate ("LIBOR") plus an additional 1% and was payable
            monthly. The Spotless Note had a maturity date of October 29, 2004,
            unless Spotless elected to defer repayment until October 29, 2005.
            The outstanding principal amount and all accrued and unpaid interest
            under the Spotless Note was convertible, at the option of Spotless,
            in whole or in part, at any time, into shares of Common Stock at the
            rate of one share of Common Stock for every $.07904 of principal and
            accrued interest so converted (or, in the event that certain
            approvals have not been obtained at the time of conversion, into
            shares of Series B Preferred at the rate of one share of Series B
            Preferred for every $79.04 of principal and accrued interest so
            converted). In connection with the Spotless Note, each of the
            Obligors granted to Spotless a security interest in all of their
            respective assets pursuant to a Security Agreement dated October 29,
            1999. The transaction with Spotless described above is hereafter
            referred to as the "Spotless Transaction".

            On November 16, 2001, Acquisition Corp. exercised its right to
            convert all 9,346 shares of the Company's Series B preferred stock.
            As a result of such conversion and in accordance with the terms of
            the Company's Series B preferred stock, Acquisition Corp. was issued
            10,495,174 shares of the Company's common stock. Such amount
            included 9,346,000 shares as a result of the 1,000:1 conversion
            ratio, and an additional 1,149,174 shares that were calculated based
            upon a formula that took into consideration the value of the Series
            B preferred stock on the date of issuance and the number days
            elapsed from the date of the issuance of the Series B preferred
            stock through the conversion date. The issuance of the additional
            shares of common stock was recorded as a dividend of $390,719. The
            dividend represents the difference between the fair market value of
            the Company's common stock issued on November 16, 2001 and the fair
            market value of the Company's common stock at the date the Series B
            preferred stock was issued.

            On November 16, 2001, Spotless exercised its right to convert all
            principal and accrued and unpaid interest on the $2,000,000 Spotless
            Note. As a result of the conversion of the Spotless Note and accrued
            and unpaid interest, the Company issued 28,555,250 shares of its
            common stock to Acquisition Corp. in full satisfaction of the
            Spotless Note and the related accrued and unpaid interest.

            Until June 30, 2005, after giving effect to these conversions,
            Spotless beneficially owned 61,335,107 shares, or approximately 79%,
            of the Company's issued and outstanding shares of Common Stock.

            On February 5, 2004, the Company entered into an account receivable
            finance agreement with Spotless pursuant to which Spotless purchased
            certain of the Company's accounts receivable without recourse for
            cash, subject to certain terms and conditions. Pursuant to the
            account receivable finance agreement, Spotless had the ability, but
            not the obligation, to purchase one or more of the Company's
            accounts receivable, that were approved by Spotless, in its sole
            discretion, in respect of the particular debtor, invoices and
            related credit. Pursuant to the agreement, Spotless could purchase
            accounts receivable at a 15% discount, as adjusted by Spotless in
            its sole discretion, to invoice prices, which the Company believed
            was at least as favorable to it as would have been available from an
            unaffiliated third-party, based upon a good-faith estimate of an
            applicable discount negotiated at arm's length. In this regard, all
            of the accounts receivable purchased by Spotless were at a 15%
            discount except one with an invoice price of $1,028,194, which was
            purchased at a 31% discount on April 29, 2004, given certain
            factors, including anticipated slower collections associated with
            the particular account debtor. In addition, the Company paid monthly
            discount fees on any purchased accounts receivable based upon
            invoice prices. Spotless purchased accounts receivable in the
            aggregate face amount of $4,991,251 from the Company for an
            aggregate purchase price of $4,080,042. The $911,209 difference
            between the aggregate face amount and the aggregate purchase price,
            representing the purchase discounts and the monthly discount fees
            were recorded as "Purchase discounts and financing fees paid to
            related party" in the Company's consolidated statements of
            operations. The aggregate amount of the purchase discounts and
            monthly discount fees under this Agreement were $255,585 for the
            fiscal year ending June 28, 2005 and $808,519 for the fiscal year
            ending June 29, 2004. No accounts receivable were sold thereunder in
            the Company's fiscal quarter ended September 27, 2005. Each sale of
            an account receivable was treated as a sale thereof, and not as a
            secured borrowing, pursuant to SFAS 140. Each sale reduced the
            Company's accounts receivable on its balance sheet by the face
            amount thereof and increased cash by the net amount received by the
            Company (after deducting the purchase discount applied thereto from
            the face amount thereof). The amount of cash received by the Company
            in connection with sales of its accounts receivable in its fiscal
            years ended June 28, 2005 and June 29, 2004 equaled $826,465 and
            $3,253,585, respectively. The proceeds of these sales of accounts
            receivable, exclusive of discounts, were recorded as cash provided
            by operating activities in the Company's statement of cash flows,
            under the categories "Changes in Operating Assets and Liabilities"
            under the line item "Accounts Receivable" and under "Net Cash
            Provided By (Used In) Operating Activities." Further, the Company
            manages the $158,469 in accounts receivable that it sold to Spotless
            which remains outstanding while remaining obligated to remit to
            Spotless any proceeds received, and bears any related litigation
            costs. The Company did not recognize any service income relating to
            its management of the accounts receivable sold to Spotless because
            it deemed any amounts thereof to be immaterial.


                                      F-15



            In addition, on June 30, 2005, the Company repurchased from Spotless
            an account receivable in the face amount of $189,197 which it had
            previously sold to Spotless pursuant to the Accounts Receivable
            Finance Agreement. In connection therewith, the Company is obligated
            to pay this amount to Spotless,.

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

                  o     a secured convertible term note, dated June 30, 2005, in
                        the principal amount of $5,000,000 (as amended and
                        restated, the "Note"). 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 not
                        to 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 as required to be filed by us
                        pursuant to the registration rights agreement described
                        below;

                  o     a twenty-year option (the "Initial Option"), dated June
                        30, 2005, to purchase 30,395,179 shares of the Company's
                        Common Stock at a purchase price of $.0001 per share, of
                        which a portion has been exercised to purchase 1,500,000
                        shares; and

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

            After consummating the transaction on June 30, 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.

                  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.

                  o     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.

            On September 29, 2006, the Company entered into an Omnibus Amendment
            with Laurus (the "Omnibus Amendment") and amended and restated the
            Note. The Omnibus Amendment and the Note improve for the Company
            certain terms of the original agreements between the parties and
            eliminate the authorized share deficiency that caused the necessity
            of applying derivative liability accounting. The transaction terms,
            which significantly reduce the shares issuable to Laurus, among
            other things, include:

                  1)    $4,000,000 of the remaining principal balance on the
                        Note became non-convertible.


                                      F-16



                  2)    Six months (July through December 2006) of principal
                        payments under the Note have been deferred to the
                        maturity date.

                  3)    Future monthly payments on the Note have been reduced to
                        $100,000 beginning January 1, 2007, first applied to
                        interest and then to principal.

                  4)    If at any time the Company has a cash and cash
                        equivalents total balance in excess of $1,000,000, 50%
                        of any cash received in excess of such amount will be
                        used to pay down principal of the Note.

                  5)    The Note was extended for one year (through June 2009).

                  6)    An option to purchase 11,145,000 shares of Common Stock
                        at a nominal exercise price was issued to Laurus on
                        September 29, 2006 (together with the Initial Option,
                        the "Options").

                  7)    The beneficial ownership cap on securities of the
                        Company that may be beneficially owned by Laurus at any
                        one time has been raised from 4.99% to 9.99%.

                  8)    Laurus agreed to transfer voting control of all
                        securities of the Company owned by Laurus either to the
                        Company or to a third party.

            This Note is the only Laurus note issued by the Company that is
            currently outstanding. Payments made by the Company on the Note on
            the required due dates, and conversions on the Note, have reduced
            the current principal balance of the Note to $5,942,175 as of
            October 10, 2006.

            Concurrently with the Laurus financing, on June 30, 2005, the
            Company also issued a variable interest rate secured promissory note
            in the principal amount of $500,000 to Spotless Plastics (USA),
            Inc., an affiliate of our previous majority stockholder and senior
            secured lender, bearing interest at LIBOR plus 1%.

            The proceeds 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


                                      F-17


                        o     Initial Hurricane Katrina mobilization
                              costs                                      238,173
                        o     Working capital                          1,739,807
                                                                      ----------
                        Sub-total                                      2,304,691
                                                                      ----------
                        Total                                         $7,350,000
                                                                      ==========

            As part of the financing transaction, Laurus required the Company to
            obtain a $3,000,000 key man renewable term life insurance policy on
            the life of its president and chief executive officer. The Company
            is the beneficiary of the policy, which has a current annual premium
            of $24,969, payable by the Company. Laurus is a contingent
            beneficiary of this life insurance policy.

            Set forth below is a summary of the material terms of the agreements
            governing the Laurus financing transaction, as amended through
            September 29, 2006:

            The funds borrowed under the Laurus financing are governed by the
            Securities Purchase Agreement, as amended, the Note, a security
            agreement, a stock pledge agreement, a registration rights
            agreement, as amended, and a subsidiary guaranty. Under the terms of
            the Securities Purchase Agreement, as amended, Laurus had a right to
            provide the Company with $1,300,000 of financing in addition to the
            original $5,000,000 that it provided to the Company on the same
            terms as the original Note. In connection with the additional
            borrowings described above, Laurus has provided all of such
            additional financing.

            Principal Borrowing Terms and Prepayment. Pursuant to the terms of
            the Note, which matures on June 30, 2009, the Company made, on the
            first day of each month, monthly payments of principal to Laurus in
            the amount of $229,687.50, plus interest, for the period from
            January 1, 2006 through June 30, 2006. For the period from July 1,
            2006 through December 31, 2006, the Company is required to make
            interest payments only, which payments have been made through the
            date of the filing of this Form 10-K. Commencing January 1, 2007,
            until maturity, the Company is required to make monthly payments to
            Laurus of $100,000, first applied to interest and then to principal.
            In addition, if at any time after September 29, 2006, the Company
            has a cash and cash equivalents balance above $1,000,000, 50% of any
            cash received by the Company in excess of such amount will be used
            to pay down principal of the Note. Principal payments were
            originally due to commence starting November 1, 2005 but, in
            November 2005, Laurus agreed to defer the initial payment 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, 2009. The Company is required to pay such
            amounts in shares of Common Stock should all of the following
            conditions be satisfied:

                  o     the average closing price of the Common Stock for the
                        five (5) trading days immediately prior to the first of
                        each 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 day of each month for which payment is due;

                  o     the Common Stock to be issued 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 shares of
                        Common Stock does not and would not by virtue thereof
                        exceed 9.99%;

                  o     the Company is not in default of the Note;

                  o     the maximum number of shares of Common Stock into which
                        the Note is convertible is not exceeded.

Should the Company be required to pay cash, this may have an adverse effect on
its cash flow and liquidity.

The Note may be redeemed by the Company in cash by paying the holder of the Note
110% of the principal amount, plus accrued interest. As discussed below, the
holder of the Note may convert a portion of the Note, together with related
interest and fees, into fully paid shares of the Common Stock at any time,
provided that, commencing September 29, 2006, the amount converted cannot exceed
$1,942,175. 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.


                                      F-18



The conversion price of the Note may be adjusted pursuant to customary
anti-dilution provisions, such as if the Company pays a stock dividend,
reclassifies its capital stock or subdivides or combines its outstanding shares
of common stock into a greater or lesser number of shares.

The Company may receive proceeds from the exercise of the Options 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 the Common Stock exceeds the per share
exercise price, and Laurus may effect a cashless exercise of the Options if (a)
the market price of the Common Stock exceeds the per share exercise price and
(b) (1) the Company has not registered the shares underlying the Options
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 Common Stock
with a value equal to the difference between the market price per share of the
Common Stock at the time of exercise and the exercise price per share set forth
in the Options and the warrant, multiplied by the number of shares with respect
to which the Options or warrant are exercised. There would be no proceeds
payable to the Company upon a cashless exercise of the Options or the warrant.
There can be no assurances that Laurus will exercise the Options and warrant or
that it will elect to pay the exercise price in cash in lieu of a cashless
exercise. On September 12, 2005, the Company issued 1,500,000 shares of Common
Stock to Laurus in connection with its partial exercise of the Initial 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 options if such conversion and/or exercise would
cause its beneficial ownership of shares of the Company's common stock to exceed
9.99% of the outstanding shares of the Company's common stock. The 9.99%
limitation is null and void without notice to us upon the occurrence and during
the continuance of an event of default or upon 61 days' prior written notice to
the Company. As of the date of this filing, Laurus directly beneficially owns
1,500,000 shares of the Company's common stock, or approximately 4.46% of our
outstanding common stock. As a result, Laurus could only acquire up to
approximately 1,856,220 additional shares, which would constitute a conversion
of approximately $167,060 of the principal amount of the Note, while remaining
in compliance with the 9.99% limitation. Since Laurus is irrevocably prohibited
from waiving this 9.99% limitation, except as described above, even if the other
conditions allowing the Company to pay in shares of common stock have been
satisfied, if Laurus cannot or does not reduce its ownership of the Company's
common stock at a time when such reduction would be necessary to allow the
Company to make a payment in shares of common stock, the Company would be
required to pay Laurus in cash. This may have an adverse effect on the Company's
cash flow and liquidity.

Events of Default and Collateral. In the event the Company defaults on the Note,
the Company will be required to pay 110% of the outstanding principal amount of
the Note, plus accrued but unpaid interest. In addition, upon the occurrence of
an event of default, the interest rate charged with respect to the Note will be
increased by 2% per month until the default is cured. The Note is secured by a
lien on substantially all of the Company's assets, including the stock of
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 the
Company and Laurus, and as currently in effect, contains no specific financial
covenants. The Master Security Agreement and the Note, as amended, 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 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;


                                      F-19



                  o     a breach 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 the Company, which is not
                        vacated within 30 days;

                  o     any attachment or lien in excess of $75,000 in the
                        aggregate made upon the Company's assets or a judgment
                        rendered against the Company's property involving a
                        liability of more than $75,000 which shall remain
                        unvacated, unbonded or unstayed 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 the Common Stock is in effect for 5
                        consecutive trading days or 5 days during a period of 10
                        consecutive trading days, if the Company is not able to
                        cure such trading suspension within 30 days of receiving
                        notice or are not able to list the Common Stock on
                        another principal market within 60 days of such notice;

                  o     an indictment or threatened indictment of the Company or
                        any of the Company's executive officers under any
                        criminal statute or commencement or threatened
                        commencement of criminal or civil proceedings against
                        the Company or any of its 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 senior
                        management.

            Registration Rights. Pursuant to the terms of the Registration
            Rights Agreement, as amended, the Company is obligated to file, on
            or prior to December 15, 2006, a registration statement with the
            Securities and Exchange Commission registering the resale of
            5,395,061 shares of Common Stock issuable to Laurus, which
            registration statement is required to become effective by February
            15, 2007. The Company has also agreed to file such further
            registrations as necessary to register the remaining shares of
            Common Stock underlying the securities owned by Laurus not
            registered in the foregoing registration statement, in each case
            within 45 days of written notice by Laurus.

            As consideration for investment banking services in connection with
            the securities purchase agreement, as amended, the Company paid
            3.58% of the gross proceeds to Laurus Capital Management, L.L.C.,
            which is an affiliate of Laurus Master Fund, Ltd., to which the
            Company paid a fee of $1,750,000 in connection with the securities
            purchase agreement, as amended.

            The Company also issued a subordinated secured promissory note to
            Spotless in the principal amount of $500,000, bearing interest at
            LIBOR plus 1%. Pursuant to the terms of this note, amortized
            payments of $50,000 per month become due and payable beginning July
            1, 2007 until all amounts due thereunder are fully paid, so long as
            the Company is not in default of the note it issued to Laurus. The
            note the Company issued to Spotless, together with the $2,750,000
            payment to Spotless referred to above, fully satisfied all of its
            financial obligations concerning Spotless.

            In connection with the transaction with Laurus, the Company, along
            with Spotless, terminated their account receivable finance
            agreement, dated February 5, 2004, as amended, except with respect
            to the Company's obligation to continue to collect and remit payment
            of outstanding accounts receivable that Spotless had purchased under
            the agreement. As of June 30, 2005, Spotless was due payment for
            purchased accounts receivable in the amount of $158,469. As part of
            the transactions, Spotless assigned to the Company an account
            receivable with a balance of $189,197, and the Company agreed to pay
            this amount to Spotless.

            On June 30, 2005, Spotless sold 15,469,964 shares of the Common
            Stock 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
            to Spotless, bearing interest at LIBOR plus 1%. Spotless surrendered
            its remaining 45,865,143 shares to the Company for cancellation. In
            addition, the Company issued an option exercisable at $.09 per share
            to Mr. O'Reilly to purchase 15,469,964 shares of Common Stock.


                                      F-20



            After giving effect to the above-mentioned financing transactions,
            Spotless ceased beneficially owning any of the Common Stock.

            On June 30, 2005, agreements between the Company, Spotless and Mr.
            O'Reilly pursuant to which Mr. O'Reilly had the right to sell to the
            Company, and in certain circumstances to Spotless, all shares of
            Common Stock held by him upon the occurrence of certain events, were
            terminated.

            On June 30, 2005, the Company issued ten-year options exercisable at
            $.09 per share to its series A convertible preferred stockholders,
            including Dr. Kevin Phillips, one of its directors, to purchase an
            aggregate of 500,000 shares of Common Stock. The Company valued
            these options using the Black-Scholes valuation method and recorded
            deferred financing costs as a credit to additional paid-in capital
            in connection therewith. The Company also agreed to pay, out of
            legally available funds, accrued and unpaid dividends in an
            aggregate of (1) $35,000 to the Series A Preferred stockholders, on
            each of June 30, 2005, September 30, 2005 and December 30, 2005 and
            (2) $50,000 to the Series A 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 its
                        certificate of incorporation in order to accommodate the
                        full issuance of the shares of its Common Stock
                        underlying the Note and the Initial 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 the 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 the 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 issued to Laurus.

            On June 30, 2005, Michael O'Reilly, the Company's president and
            chief executive officer and a director, and the Series A Preferred
            stockholders, one of whom is also a director, agreed to 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 Note, the Initial Option and
            warrant the Company issued to Laurus at the Company's next annual
            stockholders meeting. The necessity to hold a stockholders meeting
            in order to increase the authorized issued shares was eliminated by
            virtue of the September 29, 2006 agreement with 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 dispositions of their respective shares of
            Common Stock and any and all related derivative securities until the
            earlier of (a) the repayment in full of the Note or (b) June 30,
            2010. Additionally, Mr. O'Reilly agreed to guarantee (a) all of the
            Company's bonding obligations and (b) up to the first $3,250,000 of
            principal payable under the Note.

4. LIQUIDITY AND BUSINESS RISKS

            Historically, the Company has financed its operations primarily
            through issuance of debt and equity securities, through short-term
            borrowings, and through cash generated from operations. In the
            Company's opinion, it expects to have sufficient working capital to
            fund its current operations as long as it does not encounter further
            difficulty collecting its accounts receivable or experience
            significant growth. However, market conditions may restrict the
            Company's use of cash. In the event that sufficient positive cash
            flow from operations is not generated, the Company may need to seek
            additional financing. The Company currently has no credit facility
            for additional borrowing.

            Laurus holds a senior security interest in the Company and the
            Company's subsidiaries' assets collateralizing the Note. In
            addition, Spotless holds a subordinated security interest
            collateralizing the Company's $500,000 note issued to Spotless. The
            existence of these security interests may impair the Company's
            ability to raise additional debt capital.


                                      F-21



5. PROPERTY AND EQUIPMENT

            Property and equipment consists of the following:

                                   June 30,     June 28,
                                     2006         2005
                                 -----------   ----------
Machinery and equipment          $ 5,645,325   $5,487,422
Office furniture and equipment       710,856      533,572
Vehicles                           3,192,818    2,068,023
Leasehold improvements               549,139      540,359
                                 -----------   ----------
                                  10,098,138    8,629,376
Less: accumulated depreciation
  and amortization                 7,178,262    6,386,731
                                 -----------   ----------
                                 $ 2,919,876   $2,242,645
                                 ===========   ==========

6. ACCRUED EXPENSES

            Accrued expenses consist of the following:

                        June 30,     June 28,
                          2006         2005
                       ----------   ----------
Professional Fees      $  292,120   $  339,330
Bonuses                   262,425      228,713
Insurance                 333,205      387,491
Dividends & Interest      201,075      251,668
Other                     481,168      404,054
                       ----------   ----------
                       $1,569,993   $1,611,256
                       ==========   ==========

7. CAPITAL LEASE OBLIGATIONS

            Capital lease obligations consists of the following:


                                                            June 30,   June 28,
                                                              2006       2005
                                                            --------   --------
Capital leases, payable in aggregate monthly installments
  of $17,400, including interest at rates ranging from
  0.01% to 13.99% expiring through April 2010               $376,554   $367,012
Less current portion                                         188,310    169,612
                                                            --------   --------
Long-term debt, excluding current portion                   $188,244   $197,400
                                                            ========   ========

            Maturities of capital leases are as follows:

Year Ending June 30
- ----------------------------------
2007                                 $208,435
2008                                  124,998
2009                                   55,094
2010                                   17,523
                                     --------
Total minimum payments                406,050
Less amounts representing interest     29,496
                                     --------
Present value of minimum payments    $376,554
                                     ========


                                      F-22



            Capital lease obligations are secured by the underlying vehicles and
            equipment with a net carrying value of $527,900 at June 30, 2006.

8. CONVERTIBLE NOTES

            See Notes 3 and 4 for a summary of the material terms of the
            agreements governing the Laurus financing transaction.

9. REDEEMABLE CONVERTIBLE PREFERRED STOCK

            In connection with the acquisition of North Atlantic Laboratories,
            Inc. in February 1997, the Company issued 1,300,000 shares of
            redeemable convertible series A preferred stock ("Series A
            Preferred") having a liquidation value of $1.00 per share plus
            accumulated dividends. The dividend rate was the greater of (i) 6%,
            or (ii) the inflation rate (as defined) plus 2.5%. After February
            1998, the Series A Preferred holders could convert their preferred
            shares to common at a ratio of one share of preferred to one share
            of common stock, subject to adjustment. The Series A Preferred is
            currently redeemable by the Company. The Series A Preferred is
            subject to redemption, in whole or in part, at the option of the
            Company, for a redemption price per share equal to the higher of (a)
            $1.00, plus any accrued and unpaid dividends, or (b) the market
            price of one share of the Common Stock (the "Redemption Price"). The
            Series A Preferred was also subject to redemption, in whole or in
            part, at the option of the holders thereof, upon six months' notice
            at any time after February 2007, for a redemption price per share
            equal to the Redemption Price.

            In March 1998, the holders of the Series A Preferred exercised their
            right to elect one member to the Board and vote together with common
            stockholders on the election of additional Directors and all other
            Company matters. Each share of Series A Preferred has one vote per
            share.

            Pursuant to the terms of the Series A Preferred, the Company is
            prohibited, without first obtaining the approval of at least a
            majority of the holders of the Series A Preferred, from (i) altering
            or changing the rights, preferences, privileges or restrictions of
            shares of Series A Preferred, (ii) increasing the authorized number
            of shares or adjusting the par value of Series A Preferred, (iii)
            issuing any shares of capital stock ranking senior as to dividends
            or rights upon liquidation or dissolution to the Series A Preferred
            or (iv) issuing any common stock at a price below the conversion
            price, as defined, to any officer, director or 10% shareholder. The
            liquidation value of the Series A Preferred was $1,300,000 at June
            30, 2006, June 28, 2005, and June 29, 2004, respectively.

            On June 30, 2005, the Company (a) issued ten-year options
            exercisable at $.09 per share to the holders of the Series A
            Preferred, including Dr. Kevin Phillips, one of its directors, to
            purchase an aggregate of 500,000 shares of the Common Stock and (b)
            agreed to pay, out of legally available funds, accrued and unpaid
            dividends in an aggregate of (1) $35,000 to the holders of the
            Series A Preferred, on each of June 30, 2005, September 30, 2005 and
            December 30, 2005 and (2) $50,000 the holders of the Series A
            Preferred on February 28, 2007 in consideration for their agreement
            to:

                  o     propose and vote in favor of an amendment to its
                        certificate of incorporation in order to accommodate the
                        full issuance of the shares of Common Stock underlying
                        the Note and the Initial 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 the
                        Series A Preferred, until the earlier of six months
                        after the repayment of the Note or June 30, 2010;

                  o     defer receipt of dividend payments on the Series A
                        Preferred due after June 30, 2005, until the earlier of
                        six months after the 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.


                                      F-23



10. REDEEMABLE COMMON STOCK

            On October 29, 1999, the Company entered into an Amended and
            Restated Employment Agreement (the "Employment Agreement") with
            Michael O'Reilly, the Company's President and Chief Executive
            Officer. The Employment Agreement was for an initial term of five
            years, which was automatically extended for an additional year,
            called for a base salary of $285,000 per year and a bonus equal to
            2.5 percent of the Company's pre-tax income (as that term is defined
            in the Employment Agreement). Upon the termination of Mr. O'Reilly's
            employment by the Company (other than termination for cause, death
            or disability or his resignation without good reason, as defined in
            the Employment Agreement), Mr. O'Reilly was to be entitled to sell,
            in a single transaction:

                  o     an aggregate of 177,333 shares of Common Stock held by
                        him as of October 29, 1999; and

                  o     an aggregate of 8,836,309 shares of Common Stock
                        underlying options to purchase shares of Common Stock of
                        the Company held by him as of October 29, 1999, to the
                        extent vested and exercisable,

            (collectively the "O'Reilly Shares"), back to the Company (or
            pursuant to a letter agreement, dated October 29, 1999, between
            Michael O'Reilly and Spotless (the "Letter Agreement"), to Spotless
            to the extent that the Company's capital would be impaired by such a
            purchase) at a mutually agreeable price; provided, however, that Mr.
            O'Reilly was required to surrender, for no additional consideration,
            his option to purchase 2,811,595 shares and the ability to require
            the Company or Spotless to purchase such shares if the option had
            not vested as of the date of any repurchase of the O'Reilly Shares.
            In addition, pursuant to the Letter Agreement, Michael O'Reilly had
            the right, upon receipt of notice that Spotless and any of its
            affiliates has acquired a beneficial ownership of more than 75
            percent of the outstanding shares of Common Stock (on a fully
            diluted basis), to require Spotless to purchase, in a single
            transaction, the O'Reilly Shares. The purchase price applicable to
            any such purchase was to be at a price mutually agreed upon. If the
            parties were not able to agree upon a purchase price, then the
            purchase price was to be determined based upon a procedure using the
            appraised value of the Company at the time such obligation to
            purchase arises. Mr. O'Reilly's options to purchase 3,350,000 of the
            O'Reilly Shares vested immediately. Mr. O'Reilly's option to
            purchase 2,674,714 of the O'Reilly Shares vested as follows:

                  o     891,572 shares on October 29, 2000;

                  o     891,571 shares on October 29, 2001; and

                  o     891,571 shares on October 29, 2002.

            The option to purchase the 2,811,595 shares of the O'Reilly Shares
            vested on November 16, 2001 upon the conversion by Spotless of the
            $2,000,000 Note. The O'Reilly Shares included an aggregate of
            7,663,642, 5,663,642, 7,663,642 and 8,813,642 shares of Common
            Stock, consisting of 177,333 shares held and shares of Common Stock
            underlying fully vested options, as of June 28, 2005, September 28,
            2004, June 29, 2004 and July 1, 2003, respectively.

            On June 30, 2005, Spotless sold 15,469,964 shares of the Common
            Stock to Michael O'Reilly in consideration for a non-recourse
            ten-year balloon promissory note in the principal amount of $120,500
            issued to Spotless, bearing interest at LIBOR plus 1%. Spotless
            surrendered its remaining 45,865,143 shares to the Company for
            cancellation. 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. The Company recorded compensation expense
            for these shares in the amount of $1,450,389 for the fiscal year
            ended June 30, 2006. The Company recorded compensation expense
            (benefit) of $76,089, and ($348,626) relating to the O'Reilly Shares
            in the fiscal years ended June 28, 2005, and June 29, 2004,
            respectively.

            On June 30, 2005, agreements between the Company, Spotless and Mr.
            O'Reilly pursuant to which Mr. O'Reilly had the right to sell to the
            Company, and in certain circumstances to Spotless, all shares of the
            Company's common stock held by him upon the occurrence of certain
            events, were terminated.


                                      F-24


            On March 13, 2006 the Company amended the Employment Agreement to
            provide Mr. O'Reilly a base salary of $342,000 per year and a bonus
            equal to 5% of EBITDA (Earnings Before Interest, Taxes, Depreciation
            and Amortization) before payments the Company made to Laurus and any
            effect of embedded derivatives marked to market.

11. INCOME TAXES

            The (benefit) provision for income taxes for the fiscal years ended
            June 30, 2006, June 28, 2005, and June 29, 2004 consists of the
            following:

                       Fiscal Year Ended  Fiscal Year Ended  Fiscal Year Ended
                         June 30, 2006      June 28, 2005      June 29, 2004
                       -----------------  -----------------  -----------------
            Current:
              Federal      $1,486,314         $  25,067          $(648,645)
              State           619,446            12,260             13,700
                           ----------         ---------          ---------
                            2,105,760            37,327           (634,945)
                           ----------         ---------          ---------
            Deferred:
              Federal              --                --                 --
              State                --                --                 --
                           ----------         ---------          ---------
                           $2,105,760         $  37,327          $(634,945)
                           ==========         =========          =========

            The benefit for income taxes for the fiscal year ended June 29, 2004
            represents the federal tax refund resulting from the carry back of
            the net loss incurred net of state tax expense. The provision for
            income taxes for the fiscal year ended June 28, 2005 represents the
            effect of carryforward losses from prior years. During its fiscal
            year ended June 28, 2005, the Company received a refund of $641,795,
            which was reflected on its statement of cash flows in the line item
            "Income tax refund". The refund equaled the current year tax
            valuation allowance (net of state taxes) as the only tax valuation
            allowance provided were the refunds because the deferred taxes were
            subject to a 100% tax valuation. At June 30, 2006, the Company has
            net operating loss carryforwards for tax purposes of approximately
            $1,656,000 that expire as follows: $68,115 per year for 13 years
            from June 30, 2006 through 2019 and $1,042,936 in June 2024. As a
            result of a change in the Company's ownership on June 30, 2005, the
            $1,042,936 net operating loss carryforward is subject to an annual
            usage limitations of approximately $272,000.

            The Company's effective tax rate for the fiscal years ended June 30,
            2006, June 28, 2005 and June 29, 2004 differs from the federal
            statutory rate as a result of the following:

                                       Fiscal Year   Fiscal Year   Fiscal Year
                                          Ended         Ended         Ended
                                      June 30, 2006 June 28, 2005 June 29, 2004
                                      ------------- ------------- -------------
            Statutory United
              States federal tax rate    (34.0)%        34.0%        (34.0)%
            State income taxes, net
              of federal benefit          (4.3)%        19.1%           .2%
            Embedded Derivatives          15.1%          0.0%          0.0%
            Valuation allowance           34.3%        (39.3)%        18.3
            Other                           .9%         17.4%           .3%
                                         -----         -----         -----
                                          12.0%         31.2%        (15.2)%
                                         =====         =====         =====


                                      F-25



            Deferred tax assets consisted of the following components at June
            30, 2006 and June 28, 2005:

                                                          June 30,    June 28,
                                                            2006        2005
                                                         ----------  ----------
            Net operating loss and credit carryforwards  $1,045,000  $1,331,000
            Reserves                                        891,000     697,000
            Deferred compensation                         5,972,000      62,000
            Depreciation                                   (265,000)   (302,000)
            Other, net                                       55,000      70,000
                                                         ----------  ----------
                                                          7,698,000   1,795,000
            Less: Valuation allowance                     7,698,000   1,795,000
                                                         ----------  ----------
            Net deferred tax asset                       $       --  $       --
                                                         ==========  ==========

            At June 30, 2006 and June 28, 2005, the Company has provided a full
            valuation allowance against the gross deferred tax asset. Such
            valuation allowance was recorded because management does not believe
            that the utilization of the tax valuation allowances from operating
            losses and other temporary differences are "more likely than not" to
            be realized.

12. COMMITMENTS

            We hold a lease expiring in April 2007 for our 50,000 square foot
            facility located at 100 Sweeneydale Avenue, Bay Shore, New York
            11706. The lease provides for a current annul rent of $380,852 and
            is subject to a 4% annual escalation. This facility currently houses
            all our operations, with the exception of satellite offices in
            Florida and Louisiana.

            On September 8, 2006, we signed a lease effective September 15, 2006
            on a 68,000 square foot building for our new offices and warehouse
            to replace our current leased facilities. The original term of this
            lease is for seven years and contains renewal provisions for three
            (3) five-year extensions at our option. The initial rent during the
            first year ranges from 17,000 per month to $36,000 per month with an
            increase of 3% per annum in years 3 through 7. The lease is a net
            lease and we are responsible for any increases in real estate taxes
            and building insurance over the base year 2006-2007. The cost of the
            initial seven year commitment is approximately $3,400,000.

            In September 2005, Trade-Winds leased three premises to serve as a
            satellite office, regional command center, training center and
            housing for our employees in Louisiana. On September 1, 2005,
            Trade-Winds made arrangements to lease a house located in Baton
            Rouge. Louisiana for $1,000 per month for six months. On September
            2, 2005, Trade-Winds entered into a one-year lease agreement for
            another property located in Baton Rouge, Louisiana for $2,000 per
            month. On August 20, 2006, this lease was extended another year
            under the same terms with an option for an additional year. Pursuant
            to the terms of the lease, the lessor shall give Trade-Winds first
            option to purchase the land. On September 8, 2005, Trade-Winds
            entered into a one-year lease agreement for property located in
            Convent, Louisiana for $39,500 per month, which was not subsequently
            renewed.

            We hold a lease expiring in 2007 for our satellite office in
            Tamarac, Florida, which enables us to procure projects in that
            state. The lease provides for a current annual rent of $77,272.

            Future minimum lease payments under noncancellable operating leases
            for office space as of June 30, 2006, are as follows:

            Fiscal Years Ending,
            -----------------------------------
            June 30, 2007                         $479,183
            June 30, 2008                           24,000
            June 30, 2009                            6,000
                                                  --------
            Total future minimum lease payments   $509,183
                                                  ========


                                      F-26



            Total rental expense was $528,469, $366,204, and $434,790, for the
            fiscal years ended June 30, 2006, June 28, 2005, and June 29, 2004,
            respectively.

13. STOCK ISSUANCES

            During the fiscal years ended June 30, 2006, June 28, 2005, and June
            29, 2004, the Company did not issue any shares of common stock or
            preferred stock, except as described below.

            On September 12, 2005, the Company issued 1,500,000 shares of its
            common stock to Laurus, pursuant to its partial exercise of the
            Initial Option the Company issued to Laurus on June 30, 2005 to
            purchase such shares at an exercise price of $.0001 per share, or
            $150 in the aggregate, with respect to the partial exercise.

            On June 30, 2005, the Company sold to Laurus a secured convertible
            note in the principal amount of $5,000,000, pursuant to a Securities
            Purchase Agreement, as amended, and related agreements. In addition,
            the Company also issued to Laurus, as part of the financing
            transaction and for no separate or additional consideration, (a) a
            twenty-year option to purchase 30,395,179 shares of the Common Stock
            at a purchase price of $0.0001 per share and (b) a seven-year Common
            Stock purchase warrant to purchase 13,750,000 shares of the Common
            Stock at a purchase price of $0.10 per share. On July 13, 2005,
            Laurus loaned the Company an additional $350,000 on the same terms
            and conditions as the original secured convertible term note and
            amended and restated the note to be in the principal amount of
            $5,350,000. On September 9, 2005, Laurus loaned the Company an
            additional $650,000 on the same terms and conditions as the original
            financing transaction and further amended and restated the note to
            be in the principal amount of $6,000,000. On October 6, 2005, Laurus
            loaned the Company an additional $1,350,000 on the same terms and
            conditions as the original financing transaction and further amended
            and restated the note to be in the principal amount of $7,350,000.
            On September 29, 2006, the Company entered into an Omnibus Amendment
            with Laurus and futher amended and restated the note. See Notes 3
            and 4.

            In addition, the Company issued a subordinated secured promissory
            note to Spotless in the principal amount of $500,000. Spotless
            surrendered its remaining 45,865,143 shares to the Company for
            cancellation on June 30, 2005. Additionally, the Company issued (i)
            an option exercisable at $.09 per share to Mr. O'Reilly to purchase
            15,469,964 shares of its common stock and (ii) ten-year options
            exercisable at $.09 per share to the Series A Preferred
            stockholders, including Dr. Kevin Phillips, one of the Company's
            directors, to purchase an aggregate of 500,000 shares of Common
            Stock in consideration for their agreement to:

                  o     propose and vote in favor of an amendment to its
                        certificate of incorporation in order to accommodate the
                        full issuance of the shares of Common Stock underlying
                        the Note and the Initial 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 the
                        Series A Preferred, until the earlier of six months
                        after the repayment of the Note or June 30, 2010;

                  o     defer receipt of dividend payments on the Series A
                        Preferred due after June 30, 2005, until the earlier of
                        six months after the 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 May 24, 2005, the Company's board of directors granted a non-plan
            ten-year option exercisable at $0.06 per share to Anthony P. Towell,
            a member of the Board of Directors of the Company, to purchase
            250,000 shares of Common Stock in connection with his service on its
            then-existing special committee. Mr. Towell would only be required
            to pay cash to the Company, if at all, in connection with exercising
            the option prior to expiration.

            On May 24, 2005, the Company's board of directors granted a non-plan
            five-year option exercisable at $.01 per share and $0.1875 per share
            to Michael O'Reilly to purchase 2,000,000 and 250,000 shares of
            common stock, respectively, in an effort to continue incentivizing
            him in his capacity as the Company's President and Chief Executive
            Officer. Mr. O'Reilly would be required to pay cash to the Company,
            if at all, in connection with exercising the option prior to
            expiration. The Company recorded these options based on the
            intrinsic value method and recognized an expense of $100,000 in
            connection therewith pursuant to APB No. 25.


                                      F-27



            On December 6, 2004, the Company's board of directors granted a
            ten-year option exercisable at $0.035 per share to each of Anthony
            P. Towell and Dr. Kevin Phillips to purchase 100,000 shares of
            Common Stock under the Company's 2001 Equity Incentive Plan in
            connection with their service as the Company's directors. Mr. Towell
            and Dr. Phillips would only be required to pay cash to the Company,
            if at all, in connection with exercising their options prior to
            expiration. The Company accounted for these options in accordance
            with APB No. 25 based on the intrinsic value method as described in
            Note 1.

            See Note 3.

14. STOCK OPTIONS

            As of June 30, 2006, 2,850,000 shares of Common Stock were reserved
            for issuance upon the exercise of options then outstanding and
            5,150,000 shares were available for future grant under the Company's
            three stock option plans, under which options may be granted to key
            employees, directors, and other persons rendering services to the
            Company. As of June 30, 2006, in addition to shares reserved for
            issuance (a) under the Company's equity incentive plans, (b) upon
            the exercise of the Initial Option and warrant issued to Laurus and
            (c) upon exercise of options granted to the Series A Preferred
            stockholders, 23,956,273 shares of Common Stock were reserved for
            issuance upon the exercise of options and warrants then outstanding
            to its chief executive officer and president and one of its
            directors that were not covered under the Company's three stock
            option plans. Options which are designated as "incentive stock
            options" under the option plans may be granted with an exercise
            price not less than the fair market value of the underlying shares
            at the date of the grant and are subject to certain quantity and
            other limitations specified in Section 422 of the Internal Revenue
            Code. Options which are not intended to qualify as incentive stock
            options may be granted at any price, but not less than the par value
            of the underlying shares, and without restriction as to amount. The
            options and the underlying shares are subject to adjustment in
            accordance with the terms of the plans in the event of stock
            dividends, recapitalizations and similar transactions. The right to
            exercise the options generally vests in increments over periods of
            up to five years from the date of grant or the date of commencement
            of the grantee's employment with the Company, up to a maximum term
            of ten years for all options granted.

            The summary of the status of the Company's outstanding stock options
            for the fiscal years ended June 30, 2006, June 28, 2005 and June 29,
            2004 is presented below:



                                        Employees   Weighted                Weighted                Weighted
                                           and       Average      Non-       Average      Non-       Average
                                        Directors   Exercise    Employee    Exercise    Employee    Exercise
                                         Options      Price      Options      Price     Warrants      Price
                                       ----------   --------   ----------   --------   ----------   --------
                                                                                    
Outstanding at July 1, 2003            11,821,618     $.12         30,000    $  .41            --        --
Granted                                   650,000     $.22             --        --            --        --
Forfeited                              (2,175,000)    $.26        (30,000)   $  .41            --        --
Exercised                                      --       --             --        --            --        --
                                       ----------     ----     ----------    ------    ----------     -----
Outstanding at June 29, 2004           10,296,618     $.14             --        --            --        --
Weighted-average fair values of
  options granted during the
  year                                         --     $.22             --        --            --       --
Granted                                 2,700,000     $.03             --        --            --       --
Forfeited                              (2,160,309)    $.03             --        --            --       --
Exercised                                      --       --             --        --            --       --
                                       ----------     ----     ----------    ------    ----------     ----
Outstanding at June 28, 2005           10,836,309     $.09             --        --            --       --
Weighted-average fair values of
  options granted during the
  year                                         --     $.03             --        --            --       --
Granted                                15,969,964     $.09     30,395,179    $.0001    13,750,000     $.10
Forfeited                                      --       --             --        --            --       --
Exercised                                      --       --     (1,500,000)    .0001            --       --
                                       ----------     ----     ----------    ------    ----------     ----
Outstanding at June 30, 2006           26,806,273     $.09     28,895,179    $.0001    13,750,000     $.10
                                       ==========     ====     ==========    ======    ==========     ====
Weighted-average fair values of
  options granted during the
  year                                         --     $.09             --    $.0001            --     $.10
Options exercisable at June 29, 2004   10,296,618     $.14             --    $   --            --       --
                                       ==========     ====     ==========    ======    ==========     ====
Options exercisable at June 28, 2005   10,836,309     $.09             --    $   --            --       --
                                       ==========     ====     ==========    ======    ==========     ====
Options exercisable at June 30, 2006   26,806,275     $.09     28,895,179    $.0001    13,750,000     $.10
                                       ==========     ====     ==========    ======    ==========     ====


      The above table does not include the effect of 184,405 shares underlying
      an option issued to Laurus on June 30, 2005, which are deemed exercised
      because of nominal consideration at June 30, 2006 for financial statement
      presentation purposes.


                                      F-28



                                       Weighted
                          Number        Average
                       Outstanding     Remaining        Number
            Exercise   at June 30,    Contractual   Exercisable at
              Price       2006       Life (years)    June 30, 2006
            --------   -----------   ------------   --------------
            $.0001     28,895,179        19.00        28,895,179
            $  .01      2,000,000         3.92         2,000,000
            $ .035        200,000         8.42           200,000
            $  .06        250,000         8.92           250,000
            $ .079      5,486,309         3.25         5,486,309
            $  .08        200,000         2.42           200,000
            $  .09     15,969,964         3.97        15,969,964
            $  .16        600,000          .71           600,000
            $  .17        400,000          .08           400,000
            $.1875        250,000         3.92           250,000
            $  .19        650,000          .17           650,000
            $  .22        200,000         1.50           200,000
            $  .23      3,150,000          .25         3,150,000
            $  .34        250,000         2.17           250,000
                       ----------                     ----------
                       55,701,452                     55,701,452
                       ==========                     ==========

15. FINANCING AND RELATED PARTY TRANSACTIONS

            As of June 28, 2005, the Company owed Spotless Plastics (USA) Inc.
            $5,000,000 under the Spotless Loan, in the original principal amount
            of $1,700,000. The Spotless note was collateralized by all of the
            Company's assets. During the fiscal year ended June 29, 2004, the
            Company borrowed $3,300,000 from Spotless for working capital
            requirements and to fund losses. During the fiscal year ended July
            1, 2003, the Company borrowed $2,325,000 from Spotless for working
            capital requirements and to fund certain fixed asset purchases. The
            Company repaid $825,000 to Spotless in the fiscal year ended July 1,
            2003.


                                      F-29



            As of June 28, 2005, Spotless was due payment from third parties for
            accounts receivable in the amount of $158,469 purchased under its
            account receivable agreement dated February 5, 2004, with the
            Company. 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 account 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 Company's fiscal
            years 2005, 2004 and 2003, the Company was charged by Spotless an
            administrative fee of $84,138, $131,556 and $101,256, respectively,
            of which $84,138 remained unpaid and included in accrued expenses as
            of June 28, 2005. On June 30, 2005, Spotless agreed to forgive the
            $84,138 in administrative fees that was outstanding.

            From June 30, 2005 through October 6, 2005, the Company entered into
            financing transactions with Laurus pursuant to the terms of a
            securities purchase agreement, as amended, and related documents. On
            September 29, 2006, subsequent to the fiscal 2006 year end, the
            agreements underlying the financing transaction with Laurus was
            amended. Reference is made to Notes 3 and 4 for a description of the
            Laurus financing transactions.

            Concurrently with the Laurus financing, on June 30, 2005, the
            Company also issued a variable interest rate secured promissory note
            in the principal amount of $500,000 to Spotless Plastics (USA),
            Inc., an affiliate of our previous majority stockholder and senior
            secured lender, bearing interest at LIBOR plus 1%. Further
            information as to transactions with Spotless is contained in Note 3.

            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 vice president of finance and
            administration and secretary. Pursuant to a transition services
            agreement, Spotless agreed to provide the services of Mr. Murphy to
            the Company, including in relation to advice in the areas of:

                  o     administration;

                  o     accounting, finance and risk management; and

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

            during a six-month transitional process for a fee of $5,000 per
            month and a payment of $25,000 to Mr. Murphy at the end of the
            transitional period.

            For certain transactions between Michael O'Reilly, the Company's
            president and chief executive officer, and the Company and Spotless,
            reference is made to Note 3.

            On March 13, 2006, the Compensation Committee of the Company
            approved an increase in Mr. O'Reilly's base salary to $342,000 per
            year. In addition, in lieu of the bonus provided by the Employment
            Agreement, the Company agreed to pay Mr. O'Reilly an annual bonus
            for each fiscal year, commencing with the fiscal year ending in June
            2006, an amount equal to 5% of EBITDA (Earnings Before Interest,
            Taxes, Depreciation and Amortization) determined in accordance with
            Generally Accepted Accounting Principles and calculated without
            taking into account any payments made by the Company to Laurus. The
            amount of such bonus and the date of payment shall be authorized by
            the Compensation Committee within 90 days after the end of each
            fiscal year. An amendment to Mr. O'Reilly's employment agreement,
            effective as of March 13, 2006, was executed by Mr. O'Reilly and the
            Company to reflect these revisions to compensation.

            Mr. O'Reilly, the Series A Preferred 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 its 2001 Equity Incentive Plan in
            connection with his service as a director of the Company.


                                      F-30



            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. 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 condominium was sold in fiscal 2005. The full carrying costs
            during the Company's fiscal year ended June 28, 2005 and June 29,
            2004 was approximately $7,150 and $17,800, respectively. In
            connection with this arrangement, we 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. In connection with these services, our direct costs and
            allocated overhead, without a markup, equaled approximately $56,780.

            In February 1997, the Company issued 650,000 shares of Series A
            Preferred to Dr. Kevin Phillips, a director, and an additional
            650,000 shares of Series A Preferred to a business partner of Dr.
            Phillips in consideration of the sale of a business. During fiscal
            years 2006, 2005, and 2004, the Company paid an aggregate of $0, $0,
            and $39,000, respectively, of dividends and accrued interest to the
            Series A Preferred stockholders.

            The Company believes that all transactions that the Company 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.

            See Notes 3 and 4.

16. CONTINGENCIES

            Litigation and Disputes

            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. The Company has 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
            the 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 the claims of the Company. The case is
            currently in pre-trial discovery.


                                      F-31



            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.

            As of June 30, 2006, the Company is a plaintiff in approximately 20
            lawsuits, including those described above, claiming an aggregate of
            approximately $8,500,000 pursuant to which it is seeking to collect
            amounts it believes owed to it by customers that are included in its
            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.

            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.

17. MAJOR CUSTOMERS, GEOGRAPHIC INFORMATION AND CREDIT CONCENTRATIONS

            During the fiscal years ended June 30, 2006, June 28, 2005, and June
            29, 2004, the Company recognized net sales to significant customers
            as set forth below:

            Major Customers   June 30, 2006   July 28, 2005   June 29, 2004
            ---------------   -------------   -------------   -------------
              Customer A           28%             19%              4%
              Customer B           12%              4%              0%
              Customer C            4%              4%              0%

            The Company is not dependent upon its relationship with any customer
            in the fiscal year ended June 30, 2006. The level of business with a
            particular customer in a succeeding period is not expected to be
            commensurate with the prior period, principally because of the
            project nature of the Company's services. However, because of the
            significant expansion of the Company's services provided, the
            Company believes that the loss of any single customer would not have
            a material adverse effect on the Company's financial condition and
            results of operations, unless the revenues generated from any such
            customer were not replaced by revenues generated by other customers.

            At June 30, 2006, 13 percent of the Company's accounts receivable
            related to one customer. At June 28, 2005, 15 percent of the
            Company's accounts receivable related to one customer.

            During the fiscal years ended June 30, 2006 and June 28, 2005, the
            Company had no sales to customers outside the United States. During
            the fiscal year ended June 29, 2004, the Company had sales of
            approximately $23,000 to a customer outside the United States. All
            of the Company's long-lived assets reside entirely in the United
            States.

            The Company is highly dependent upon the continuing contributions of
            key managerial, technical and marketing personnel. Employees may
            voluntarily terminate their employment with the Company at any time,
            and competition for qualified technical personnel, in particular, is
            intense. The loss of the services of any of its key managerial,
            technical or marketing personnel, especially Michael O'Reilly, its
            chief executive officer, could materially adversely effect the
            Company's business, financial condition and results of operations.


                                      F-32



            The Company contracts with a limited number of customers that are
            involved in a wide range of industries. A small number of customers
            may therefore be responsible for a substantial portion of revenues
            at any time. While management assesses the credit risk associated
            with each proposed customer prior to the execution of a definitive
            contract, no assurances can be given that such assessments will be
            correct and that the Company will not incur substantial,
            noncollectible accounts receivable.

18. NET INCOME (LOSS) PER SHARE

            The following table sets forth the computation of the basic and
            diluted net (loss) income per share for the fiscal years ended June
            30, 2006, June 28, 2005 and June 29, 2004:

                                 Fiscal Year    Fiscal Year     Fiscal Year
                                    Ended          Ended           Ended
                                June 30, 2006  June 28, 2005   June 29, 2004
                                -------------  -------------   -------------
Numerator:
  Net loss attributable
    to common shareholders      $(20,517,190)   $   (53,066)    $(3,535,334)
  Less: Series A Preferred
    dividends                         78,000         78,000          78,000
                                ------------    -----------     -----------
Net loss attributable to
    common shareholders &
    assumed conversion          $(20,595,190)   $   (24,934)    $(3,613,334)
                                ============    ===========     ===========
Denominator:
  Share reconciliation:
    Shares used for basic
      (loss) income per share     33,343,615     77,936,358      77,936,358
    Effect of dilutive items:
      Stock options                       --             --              --
    Shares used for dilutive
      (loss) income per share     33,343,615     77,936,358      77,936,358
                                ============    ===========     ===========
Net (loss) income per share:
  Basic                         $       (.62)   $       .00     $      (.05)
                                ============    ===========     ===========
  Diluted                       $       (.62)   $       .00     $      (.05)
                                ============    ===========     ===========

            The diluted net loss per share for the fiscal years ended June 30,
            2006, June 28, 2005 and June 29, 2004 excludes 128,881,383,
            4,000,000 and 11,596,618 shares issuable upon the exercise of stock
            options and warrants and conversion of convertible securities,
            respectively. These shares are excluded due to their antidilutive
            effect as a result of the Company's net loss attributable to common
            shareholders during these periods.


                                      F-33



19. UNAUDITED QUARTERLY DATA

            Summarized unaudited quarterly financial data for the fiscal years
            ended June 30, 2006 and June 28, 2005 are as follows:





                                                  First           Second          Third          Fourth
Fiscal Year Ended June 30, 2006                  Quarter         Quarter         Quarter         Quarter
- --------------------------------------------   -------------   -------------   -------------   ------------
                                                                                   
Revenues                                        $  5,164,339    $ 17,714,342    $  7,213,546   $  2,552,188
Gross Profit                                    $    779,069    $  9,523,632    $  3,434,603   $     29,154
Net (loss) income                               $(25,013,935)   $ 24,963,242    $(3,362,733)   $(17,103,764)
Net (loss) income attributable to common
  shareholders                                  $(25,033,435)   $ 24,943,742    $(3,382,233)   $(17,123,264)
Net (loss) income per common share - basic      $       (.76)   $        .74    $       (.10)  $       (.50)
Net (loss) income per common share - diluted    $       (.76)   $        .17    $       (.10)  $       (.50)




                                                  First       Second        Third       Fourth
Fiscal Year Ended June 28, 2005                  Quarter      Quarter      Quarter      Quarter
- --------------------------------------------   ----------   ----------   ----------   -----------
                                                                          
Revenues                                       $5,478,506   $7,359,279   $4,801,832   $ 3,000,793
Gross profit                                   $1,116,383   $2,989,412   $1,368,778   $   (10,898)
Net income (loss)                              $ (328,545)  $1,388,310   $  128,759   $(1,135,458)
Net income (loss) attributable to common
  shareholders                                 $ (348,045)  $1,368,810   $  109,259   $(1,154,958)
Net income (loss) per common Share - basic     $     (.00)  $      .02   $      .00   $       .00
Net income (loss) per common Share - diluted   $     (.00)  $      .02   $      .00   $       .00


20. SUBSEQUENT EVENTS (UNAUDITED)

            On September 8, 2006, the Company signed a lease effective September
            15, 2006 for a 68,000 square foot building for its new offices and
            warehouse to replace its current leased facilities, which expires in
            April 2007. The original term of the new lease is for seven years
            and contains renewal provisions for three (3) five-year extensions
            at the Company's option. The initial rent during the first year
            ranges from $17,000 per month to $36,000 per month with an increase
            of 3% per annum in years 3 through 7. The lease is a net lease and
            the Company is responsible for any increases in real estate taxes
            and building insurance over the base year 2006-2007. The cost of the
            initial seven year commitment is approximately $3,400,000.


                                      F-34



                                   SIGNATURES

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

Dated: November 14, 2006

WINDSWEPT ENVIRONMENTAL GROUP, INC.


By: /s/ MICHAEL O'REILLY
    -------------------------------
    MICHAEL O'REILLY, President and
    Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this Annual Report on Form 10-K has been signed on November 14, 2006 by the
following persons on behalf of the Registrant, in the capacities indicated.

/s/ Michael O 'Reilly
- --------------------------------------------------
MICHAEL O'REILLY, President, Chief Executive
Officer and Director (Principal Executive Officer)


/s/ Arthur J. Wasserspring
- --------------------------------------------------
ARTHUR J. WASSERSPRING
Chief Financial Officer (Principal Accounting and
  Financial Officer)


/s/ Dr. Kevin Phillips, Director
- --------------------------------------------------
DR. KEVIN PHILLIPS, Director


/s/ Anthony P.Towell
- ---------------------------
ANTHONY P. TOWELL, Director



                                  EXHIBIT INDEX

      3.1   Amended and Restated Certificate of Incorporation of Windswept filed
            with the Delaware Secretary of State on March 3, 1995 (Incorporated
            by reference to Exhibit 3.1 of Windswept's Registration Statement on
            Form S-1/A filed with the SEC on February 3, 2006).

      3.2   Certificate of Designations of Series A Convertible Preferred Stock
            filed with the Delaware Secretary of State on February 28, 1997
            (Incorporated by reference to Exhibit 3.2 of Windswept's
            Registration Statement on Form S-1/A filed with the SEC on February
            3, 2006).

      3.3   Certificate of Amendment to the Certificate of Incorporation of
            Windswept filed with the Delaware Secretary of State on March 20,
            1997 (Incorporated by reference to Exhibit 3.04 of the Company's
            Annual Report on Form 10-KSB (Date of Report: April 30, 1997) filed
            with the SEC on October 3, 1997).

      3.4   Certificate of Designations of Series B Preferred Stock
            (Incorporated by reference to Exhibit 3.1 of the Company's Current
            Report on Form 8-K (Date of Report: October 29, 1999) filed with the
            SEC on November 12, 1999).

      3.5   Certificate of Amendment to the Certificate of Incorporation of
            Windswept filed with the Delaware Secretary of State on September
            18, 2000 (Incorporated by reference to Exhibit 3.5 of Windswept's
            Registration Statement in Form S-1/A filed with the SEC on February
            3, 2006).

      3.6   Certificate of Amendment to the Certificate of Incorporation of
            Windswept filed with the Delaware Secretary of State on March 15,
            2001 (Incorporated by reference to Exhibit 3.6 of Windswept's
            Registration Statement on Form S-1/A filed with the SEC on February
            3, 2006).

      3.7   By-laws of Windswept. (Incorporated by reference to Exhibit 3.3 of
            the Company's Registration Statement (No. 33-14370 N.Y.) filed with
            the SEC on June 1, 1987).

      4.1   Specimen Common Stock Certificate. (Incorporated by reference to
            Exhibit 4.01 of Windswept's Annual Report on Form 10-KSB for the
            fiscal year ended April 30, 1998, filed with the SEC on August 13,
            1998).



      10.1  Option Certificate for 2,000,000 stock options issued to Michael
            O'Reilly. (Incorporated by reference to Exhibit 4.05 of Windswept's
            Annual Report on Form 10-KSB for the fiscal year ended April 30,
            1997, filed with the SEC on October 3, 1997).

      10.2  1997 Incentive Plan. (Incorporated by reference to Exhibit 4.1 of
            Windswept's Registration Statement on Form S-8 (No. 333-22491) filed
            with the SEC on February 27, 1997).

      10.3  1998 Stock Incentive Plan. (Incorporated by reference to Exhibit 4.1
            of Windswept's Registration Statement on Form S-8 (No. 333-61905)
            filed with the SEC on August 20, 1998).

      10.4  2001 Equity Incentive Plan. (Incorporated by reference to Exhibit
            10.1 of Windswept's Quarterly Report on Form 10-Q for the quarter
            ended January 31, 2001, filed with the SEC on March 19, 2001).

      10.5  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).

      10.6  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 the Company's Current Report on Form
            8-K (Date of Report: June 30, 2005) filed with the SEC on July 7,
            2005).

      10.7  Option to purchase 2,000,000 shares of common stock dated May 24,
            2005, issued by Windswept to Michael O'Reilly (Incorporated by
            reference to Exhibit 10.8 of Windswept's Annual Report on Form 10-K
            for the fiscal year ended June 28, 2005, filed with the SEC on
            October 3, 2005).

      10.8  Option to purchase 250,000 shares of common stock dated May 24,
            2005, issued by Windswept to Michael O'Reilly (Incorporated by
            reference to Exhibit 10.9 of Windswept's Annual Report on Form 10-K
            for the fiscal year ended June 28, 2005, filed with the SEC on
            October 3, 2005).

      10.9  Option to purchase 250,000 shares of common stock dated May 24,
            2005, issued by Windswept to Tony Towell (Incorporated by reference
            to Exhibit 10.10 of Windswept's Annual Report on Form 10-K for the
            fiscal year ended June 28, 2005, filed with the SEC on October 3,
            2005).

      10.10 Option to purchase 100,000 shares of common stock dated December 6,
            2004, issued by Windswept to Tony Towell (Incorporated by reference
            to Exhibit 10.11 of Windswept's Annual Report on Form 10-K for the
            fiscal year ended June 28, 2005, filed with the SEC on October 3,
            2005).

      10.11 Stock Option Agreement dated October 29, 1999 between the Company
            and Michael O'Reilly. (Incorporated by reference to Exhibit 10.5 of
            the Company's Current Report on Form 8-K (Date of Report: October
            29, 1999) filed with the SEC on November 12, 1999).

      10.12 Stock Option Agreement dated October 29, 1999 between the Company
            and Michael O'Reilly relating to options vesting upon exercise of
            the convertible note. (Incorporated by reference to Exhibit 10.6 of
            the Company's Current Report on Form 8-K (Date of Report: October
            29, 1999) filed with the SEC on November 12, 1999).

      10.13 Option to purchase 100,000 shares dated December 6, 2004, issued by
            Windswept to Dr. Kevin Phillips (Incorporated by reference to
            Exhibit 10.14 of Windswept's Annual Report on Form 10-K for the
            fiscal year ended June 28, 2005, filed with the SEC on October 3,
            2005).



      10.14 Account Receivable Finance Agreement, dated February 5, 2004, by and
            among the Company, Trade-Winds Environmental Restoration, Inc. and
            Spotless Plastics (USA) Inc. (Incorporated by reference to Exhibit
            10.1 of the Company's Quarter Report on Form 10-Q for the quarter
            ended December 30, 2003, filed with the SEC on February 10, 2004).

      10.15 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 the Company's Current
            Report on Form 8-K (Date of Report: June 30, 2005) filed with the
            SEC on July 7, 2005).

      10.16 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).

      10.17 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 the Company's Current Report on Form
            8-K (Date of Report: June 30, 2005) filed with the SEC on July 7,
            2005).

      10.18 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).

      10.19 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).

      10.20 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
            the Company's Current Report on Form 8-K (Date of Report: June 30,
            2005) filed with the SEC on July 7, 2005).

      10.21 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 the Company's Current Report on Form
            8-K (Date of Report: June 30, 2005) filed with the SEC on July 7,
            2005).

      10.22 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 the Company's Current Report on Form 8-K (Date of
            Report: June 30, 2005) filed with the SEC on July 7, 2005).

      10.23 Forebearance 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 the Company's Current Report on Form 8-K (Date of
            Report: June 30, 2005) filed with the SEC on July 7, 2005).

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

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

      10.26 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 the Company's Current Report on Form 8-K (Date
            of Report: June 30, 2005) filed with the SEC on July 7, 2005).



      10.27 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 the Company's Current Report on Form
            8-K (Date of Report: June 30, 2005) filed with the SEC on July 7,
            2005).

      10.28 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 the Company's Current Report on Form
            8-K (Date of Report: June 30, 2005) filed with the SEC on July 7,
            2005).

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

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

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

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

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

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

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

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

      10.37 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 the Company's Current Report on Form 8-K (Date of
            Report: June 30, 2005) filed with the SEC on July 7, 2005).

      10.38 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).

      10.39 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).

      10.40 Amendment and Fee Waiver Agreement, dated as of November 23, 2005,
            by and between Windswept and Laurus (Incorporated by reference to
            Exhibit 10.01 of Windswept's Current Report on Form 8-K/A (Date of
            Report: November 23, 2005) filed with the SEC on January 17, 2006).



      10.41 Amendment and Fee Waiver Agreement, dated as of January 13, 2006, by
            and between Windswept and Laurus (Incorporated by reference on
            Exhibit 10.01 of Windswept's Current Report on Form 8-K (Date of
            Report: January 13, 2006) filed with the SEC on January 17, 2006).

      10.42 Amendment and Fee Waiver Agreement, dated as of February 28, 2006,
            by and between Windswept and Laurus (Incorporated by reference to
            Exhibit 10.01 of Windswept's Current Report on Form 8-K (Date of
            Report: February 28, 2006) filed with the SEC on March 2, 2006).

      10.43 Amendment and Fee Waiver Agreement, dated as of March 20, 2006, by
            and between Windswept and Laurus (Incorporated by reference to
            Exhibit 10.01 of Windswept's Current Report on Form 8-K (Date of
            Report: March 20, 2006) filed with the SEC on March 22, 2006).

      10.44 Amendment No. 1 to Employment Agreement, effective as of March 13,
            2006, between Windswept and Michael O'Reilly. (Incorporated by
            reference to Exhibit 10.1 of Windswept's Current Report on Form
            8-K/A (Date of Report: April 13, 2006) filed with the SEC on April
            17, 2006.

      10.45 Amendment and Fee Waiver Agreement, dated May 11, 2006, 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: May
            11, 2006) filed with the SEC on May 17, 2006).

      10.46 Amendment and Fee Waiver Agreement, dated June 12, 2006, 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
            12, 2006) filed with the SEC on June 13, 2006).

      10.47 Amendment and Fee Waiver Agreement, dated June 30, 2006, 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, 2006) filed with the SEC on July 6, 2006).

      10.48 Amendment and Fee Waiver Agreement, dated July 21, 2006, 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: July
            21, 2006) filed with the SEC on July 25, 2006).

      10.49 Amendment and Fee Waiver Agreement, dated August 25, 2006, 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:
            August 25, 2006) filed with the SEC on August 30, 2006).

      10.50 Omnibus Amendment, dated September 29, 2006, between Windswept and
            Laurus (Incorporated by reference to Exhibit 10.1 of Windswept's
            Current Report on Form 8-K (Date of Report: September 29, 2006)
            filed with the SEC on October 5, 2006).

      10.51 Amended and Restated Secured Convertible Term Note, dated September
            29, 2006, issued by the Company to Laurus (Incorporated by reference
            to Exhibit 10.2 of Windswept's Current Report on Form 8-K (Date of
            Report: September 29, 2006) filed with the SEC on October 5, 2006).

      10.52 Option, dated September 29, 2006, to purchase 11,145,000 shares of
            common stock issued by Windswept to Laurus (Incorporated by
            reference to Exhibit 10.3 of Windswept's Current Report on Form 8-K
            (Date of Report: September 29, 2006) filed with the SEC on October
            5, 2006).

      21.1  Subsidiaries of the Company.

      23.1  Consent of Holtz Rubinstein Reminick LLP.

      23.2  Consent of Massella & Associates, CPA, PLLC.



      23.3  Consent of Deloitte & Touche LLP.

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

      31.2  Certification of the Chief Financial Officer of the Company pursuant
            to Sarbanes-Oxley Section 302(a).

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

EX-21.1

                                                                    EXHIBIT 21.1

                       WINDSWEPT ENVIRONMENTAL GROUP, INC.

                                                 State or Other Jurisdiction of
      List Of Subsidiaries                       Incorporation or Organization
- ------------------------------------------       -------------------------------
North Atlantic Laboratories, Inc.                         New York

Trade-Winds Environmental Restoration Inc.                New York

EX-23.1

                                                                    Exhibit 23.1


            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


      We hereby consent to the  incorporation  by reference in the  Registration
Statements No.s 333-75904, 333-86871, 333-61905, 333-22499 and 333-43305 on Form
S-8 of our report  dated  September 6, 2006  appearing in this Annual  Report on
Form 10-K of  Windswept  Environmental  Group,  Inc. for the year ended June 30,
2006.

/s/ Holtz Rubenstein Reminick LLP

Holtz Rubenstein Reminick LLP
Melville, New York
November 8, 2006

EX-23.2

                                                                    Exhibit 23.2


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

      We hereby consent to the incorporation by reference in the Registration
Statements No.'s 333-75904, 333-86871, 333-61905, 333-22499 and 333-43305 on
Form S-8 of our report dated September 13, 2005, except for Note 2, which is as
of November 13, 2006 appearing in this Annual Report on Form 10-K of Windswept
Environmental Group, Inc. for the year ended June 30, 2006.

/s/ Massella & Associates, CPA, PLLC
Massella & Associates, CPA, PLLC
Syosset, New York
November 13, 2006

EX-23.3

                                                                    Exhibit 23.3


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We consent to the incorporation by reference in the Registration Statement No's.
333-75904; 333-86871; 333-61905; 333-22499; and 333-43305 each on Form S-8 of
our report dated September 24, 2004 (November 13, 2006, as to the effects of the
restatement discussed in the second paragraph of Note 2), which report expresses
an unqualified opinion and includes an explanatory paragraph concerning
substantial doubt about the Company's ability to continue as a going concern and
an explanatory paragraph relating to the restatement discussed in the second
paragraph of Note 2, appearing in the Annual Report on Form 10-K of Windswept
Environmental Group, Inc. for the year ended June 30, 2006.



/s/ Deloitte & Touche LLP

Jericho, New York
November 14, 2006

EX-31.1

                                                                    Exhibit 31.1

                                  Certification

      I, Michael O'Reilly, certify that:

      1. I have reviewed this annual report on Form 10-K of Windswept
Environmental Group, Inc.;

      2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

      4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

            (a) Designed such disclosure controls and procedures, or caused such
      disclosure controls and procedures to be designed under our supervision,
      to ensure that material information relating to the registrant, including
      its consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;

            (b) Evaluated the effectiveness of the registrant's disclosure
      controls and procedures and presented in this report our conclusions about
      the effectiveness of the disclosure controls and procedures, as of the end
      of the period covered by this report based on such evaluation; and

            (c) Disclosed in this report any change in the registrant's internal
      control over financial reporting that occurred during the registrant's
      most recent fiscal quarter (the registrant's fourth fiscal quarter in the
      case of an annual report) that has materially affected, or is reasonably
      likely to materially affect, the registrant's internal control over
      financial reporting; and

      5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):

            (a) All significant deficiencies and material weaknesses in the
      design or operation of internal control over financial reporting which are
      reasonably likely to adversely affect the registrant's ability to record,
      process, summarize and report financial information; and

            (b) Any fraud, whether or not material, that involves management or
      other employees who have a significant role in the registrant's internal
      control over financial reporting.

Date:  November 14, 2006


                                          /s/ Michael O'Reilly
                                          --------------------------------------
                                          President and Chief Executive Officer
                                          (principal executive officer)

EX-31.2

                                                                    Exhibit 31.2

                                  Certification

      I, Arthur Wasserspring, certify that:

      1. I have reviewed this annual report on Form 10-K of Windswept
Environmental Group, Inc.;

      2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

      4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

            (a) Designed such disclosure controls and procedures, or caused such
      disclosure controls and procedures to be designed under our supervision,
      to ensure that material information relating to the registrant, including
      its consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;

            (b) Evaluated the effectiveness of the registrant's disclosure
      controls and procedures and presented in this report our conclusions about
      the effectiveness of the disclosure controls and procedures, as of the end
      of the period covered by this report based on such evaluation; and

            (c) Disclosed in this report any change in the registrant's internal
      control over financial reporting that occurred during the registrant's
      most recent fiscal quarter (the registrant's fourth fiscal quarter in the
      case of an annual report) that has materially affected, or is reasonably
      likely to materially affect, the registrant's internal control over
      financial reporting; and

      5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):

            (a) All significant deficiencies and material weaknesses in the
      design or operation of internal control over financial reporting which are
      reasonably likely to adversely affect the registrant's ability to record,
      process, summarize and report financial information; and

            (b) Any fraud, whether or not material, that involves management or
      other employees who have a significant role in the registrant's internal
      control over financial reporting.

Date: November 14, 2006


                                          /s/ Arthur Wasserspring
                                          --------------------------------------
                                          Chief Financial Officer
                                          (principal financial officer)

EX-32

                                                                      Exhibit 32

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      The undersigned hereby certify that the Form 10-K of Windswept
Environmental Group, Inc. for the period ended June 30, 2006, fully complies
with the requirements of Section 13(a) of the Securities Exchange Act of 1934
and the information contained in such report fairly presents, in all material
respects, the financial condition and results of operations of Windswept
Environmental Group, Inc. for the periods presented.


                                          /s/ Michael O'Reilly
                                          --------------------------------------
                                          Name: Michael O'Reilly
                                          President and Chief Executive Officer
                                          (principal executive officer)

Date: November 14, 2006


                                          /s/ Arthur Wasserspring
                                          --------------------------------------
                                          Name: Arthur Wasserspring
                                          Chief Financial Officer
                                          (principal financial officer)

Date: November 14, 2006