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

                                   FORM 10-QSB



[x]    QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
       OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999

[ ]    TRANSITION REPORT UNDER SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE
       ACT OF 1934 FOR THE TRANSITION PERIOD FROM               TO
                                                  ---------       ----------


Commission file number  000-25663
                        -----------

                            ULTRASTRIP SYSTEMS, INC.
        (Exact name of small business issuer as specified in its charter)

                 Florida                                 65-0841549
     (State or other jurisdiction of                  (I.R.S. employer
     incorporation or organization)                   identification no.)

                            3515 S.E. Lionel Terrace
                              Stuart, Florida 34997
                    (Address of principal executive offices)

                                 (772) 287-4846
                (Issuer's telephone number, including area code)


                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 9,289,495 shares of common stock were
outstanding as of June 30, 1999.

Transitional Small Business Disclosure Format (check one):  Yes         No   x
                                                                -----      -----

<PAGE>


Note: The information contained in this Form 10-QSB relates only to the covered
period. Except as set forth in Note 11 to the Company's Financial Statements,
the Company has not provided supplemental or revised information after the
period covered by this report, but instead has disclosed such information in its
quarterly reports on Form 10-QSB and annual reports on Form 10-KSB, as well as
amended reports on Forms 10-QSB/A and Forms 10-KSB/A, as appropriate for periods
subsequent to June 30, 1999.

<PAGE>

                            ULTRASTRIP SYSTEMS, INC.

                                   FORM 10-QSB


                                TABLE OF CONTENTS
                                -----------------


                                                                          Page
PART I.      FINANCIAL INFORMATION

    Item 1.  Financial Statements (unaudited)
                  Condensed Balance Sheet ...............................   1
                  Condensed Statements of Operation .....................   2
                  Condensed Statements of Cash Flow .....................   3
                  Summary of Significant Accounting Policies ............   4
                  Notes to Condensed Financial Statements ...............   7
    Item 2.  Management's Discussion and Analysis or Plan of Operation ..  23

PART II.  OTHER INFORMATION

    Item 1.  Legal Proceedings ..........................................  28
    Item 2.  Changes in Securities ......................................  28
    Item 3.  Defaults Upon Senior Securities ............................  28
    Item 4.  Submission of Matters to a Vote of Security Holders ........  28
    Item 5.  Other Information ..........................................  29
    Item 6.  Exhibits and Reports on Form 8-K ...........................  29

                      Signatures ........................................  30

                      Certifications ....................................  31

                                      iii

<PAGE>

                         PART I - FINANCIAL INFORMATION


ITEM 1.    FINANCIAL STATEMENTS.

                            ULTRASTRIP SYSTEMS, INC.
                        UNAUDITED CONDENSED BALANCE SHEET

<TABLE>
<CAPTION>
====================================================================================================================================
June 30,                                                                                                      1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                   <C>
CURRENT ASSETS
   Cash and cash equivalents                                                                           $    35,927
    Escrow Receivable                                                                                       87,684
   Prepaid expenses and other                                                                               16,000
------------------------------------------------------------------------------------------------------------------------------------

TOTAL CURRENT ASSETS                                                                                       139,611

PROPERTY AND EQUIPMENT (Note 2)                                                                          1,489,599
------------------------------------------------------------------------------------------------------------------------------------

                                                                                                       $ 1,629,210
====================================================================================================================================

LIABILITIES, REDEEMABLE CONVERTIBLE CUMULATIVE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
   Accounts payable and accrued expenses                                                               $   167,741
   Accrued preferred stock dividends (Note 6)                                                               27,539
   Notes payable - current portion (Note 4)                                                                  4,244
------------------------------------------------------------------------------------------------------------------------------------

TOTAL CURRENT LIABILITIES                                                                                  199,524

LONG-TERM DEBT:
   Notes payable to shareholders (Notes 3 and 4)                                                           149,962
   Notes payable, less current portion (Note 4)                                                             91,875
------------------------------------------------------------------------------------------------------------------------------------

TOTAL LIABILITIES                                                                                          441,361

REDEEMABLE CONVERTIBLE CUMULATIVE PREFERRED STOCK SERIES A                                               1,125,000
   45 shares outstanding, $25,000 per share redemption amount (Note 6)

COMMITMENTS AND CONTINGENCIES (Notes 1 and 9)

STOCKHOLDERS' DEFICIT (Notes 5, 6 and 7)

COMMON STOCK, $0.01 par value; 40,000,000 shares authorized; 9,289,495 shares issued and outstanding        92,895
ADDITIONAL PAID-IN CAPITAL                                                                               1,742,755
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE                                                        (1,772,801)
------------------------------------------------------------------------------------------------------------------------------------

TOTAL STOCKHOLDERS' EQUITY                                                                                  62,849
------------------------------------------------------------------------------------------------------------------------------------

                                                                                                       $ 1,629,210
====================================================================================================================================
</TABLE>


                                       1
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                  UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                          From                                From              From
                                             For the three        Apr. 2, 1998      For the six       Apr. 2, 1998      Apr. 2, 1998
                                              months ended       (inception) to    months ended         (inception)   (inception) to
                                             June 30, 1999       June 30, 1998    June 30, 1999    to June 30, 1998    June 30, 1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>               <C>               <C>               <C>            <C>
DEVELOPMENT STAGE EXPENSES:
     Selling, general and administrative,
        excluding non-cash compensation
        (benefit) expense                       $   252,661       $    54,938       $   438,091       $    54,938    $   862,632
     Non-cash compensation
        expense (Notes 5 and 7)                     569,026           222,362           569,026           222,362        882,630
------------------------------------------------------------------------------------------------------------------------------------

Total development stage expenses                    821,687           277,300         1,007,117           277,300      1,745,262
------------------------------------------------------------------------------------------------------------------------------------

Loss from operations                               (821,687)         (277,300)       (1,007,117)         (277,300)    (1,745,262)
------------------------------------------------------------------------------------------------------------------------------------

Net loss                                           (821,687)         (277,300)       (1,007,117)         (277,300)    (1,745,262)

Preferred stock dividends (Note 6)                  (27,539)                -           (27,539)                -        (27,539)
------------------------------------------------------------------------------------------------------------------------------------

Net loss applicable to common stock             $  (849,226)      $  (277,300)      $(1,034,656)      $  (277,300)   $(1,772,801)
====================================================================================================================================

Net loss per common share (basic and diluted)   $     (0.09)      $      (.03)      $     (0.11)      $      (.03)
====================================================================================================================================

Weighted average number of common
   shares outstanding                             9,270,228         8,422,362         9,247,542         8,422,362
====================================================================================================================================
</TABLE>

                                       2
<PAGE>


                            ULTRASTRIP SYSTEMS, INC.
             UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS (NOTE 10)


<TABLE>
<CAPTION>
                                                                                                         From               From
                                                                             For the six         Apr. 2, 1998       Apr. 2, 1998
                                                                            months ended           (inception)     (inception) to
                                                                           June 30, 1999      to June 30, 1998      June 30, 1999
====================================================================================================================================
<S>                                                                      <C>                   <C>                <C>
OPERATING ACTIVITIES:
   Net loss                                                              $    (1,007,117)      $  (277,300)       (1,745,262)


   Adjustments to reconcile net loss to
     net cash used in operating activities:
       Depreciation                                                                3,528                  -              3,528
       Common stock issued for services                                          170,970             82,642            253,612
       Issuance of equity instruments for services                               184,040            139,720            415,002
       Non-cash compensation expense                                             214,016                  -            214,016
   Change in assets and liabilities:
         Escrow receivable                                                        28,500            (17,833)          (87,684)
         Prepaid expenses and other                                              (16,000)                -            (16,000)
         Accounts payable and accrued expenses                                   156,259                  -            167,740
---------------------------------------------------------------------------------------------------------------------------------

Net cash used in operating activities                                           (265,804)          (72,771)         (795,048)
---------------------------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES:
   Purchase of property and equipment                                         (1,193,735)           (2,244)       (1,493,127)
---------------------------------------------------------------------------------------------------------------------------------

Net cash used in investing activities                                         (1,193,735)           (2,244)       (1,493,127)
---------------------------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES:
   Proceeds from issuance of long-term debt                                       96,120                  -             96,120
   Proceeds from issuance of long-term debt and warrants to                      149,962                100            149,962
shareholders
   Proceeds from issuance of preferred stock                                   1,225,000                  -          1,225,000
   Proceeds from issuance of common stock                                              -             75,000            853,020
---------------------------------------------------------------------------------------------------------------------------------

Net cash provided by financing activities                                      1,471,082             75,100          2,324,102
---------------------------------------------------------------------------------------------------------------------------------

Net increase in cash and cash equivalents                                         11,543                 85             35,927

Cash and equivalents, beginning of year                                           24,384                  0                  0
---------------------------------------------------------------------------------------------------------------------------------

Cash and equivalents, end of period                                      $        35,927    $            85             35,927
====================================================================================================================================
</TABLE>

                                       3
<PAGE>


                            ULTRASTRIP SYSTEMS, INC.
                   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF                   The accompanying unaudited condensed financial
PRESENTATION               statements have been prepared in accordance with
                           accounting principles generally accepted in the
                           United States for interim financial information and
                           with Item 310 of Regulation S-B. Accordingly, they do
                           not include all of the information and footnotes
                           required by generally accepted accounting principles
                           for complete financial statements. All adjustments
                           which, in the opinion of management, are considered
                           necessary for a fair presentation of the results of
                           operations for the periods shown are of a normal
                           recurring nature and have been reflected in the
                           unaudited condensed financial statements. The results
                           of operations for the periods presented are not
                           necessarily indicative of the results expected for
                           the full fiscal year or for any future period. The
                           information included in these unaudited condensed
                           financial statements should be read in conjunction
                           with Management's Discussion and Analysis of
                           Financial Condition and Results of Operations
                           contained in this report, and with the Company's
                           previously filed Form 10-SB.

NATURE OF                  UltraStrip Systems, Inc. (the "Company") was
OPERATIONS                 incorporated on April 2, 1998 under the laws of the
                           State of Florida. The Company designs, develops and
                           manufactures a robotic hydro-blasting system that
                           uses ultra-high water pressure to remove coatings
                           from steel surfaces. The Company has been operating
                           as a development stage enterprise since its inception
                           and is devoting substantially all its efforts to the
                           ongoing development of the Company.

CASH AND CASH              The Company considers all highly liquid investments
EQUIVALENTS                with a maturity of three months or less when
                           purchased to be cash equivalents.


FAIR VALUE OF              The carrying amounts of the Company's financial
FINANCIAL                  assets, including cash and cash equivalents and of
INSTRUMENTS                certain financial liabilities (accounts payable and
                           accrued expenses and due to related parties),
                           approximate fair value because of their short
                           maturities.

                           Based on the Company's estimate of its current
                           incremental borrowing rate for loans with similar
                           terms and average maturities, the carrying amounts of
                           notes payable to shareholders and notes payable
                           approximate fair value.

                           Based upon the conversion terms of the Company's
                           Series A Redeemable Convertible Cumulative Preferred
                           Stock (Preferred

                                       4
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                           Stock) and the estimated current fair value of the
                           Company's Common Stock into which the Preferred Stock
                           is convertible, the fair value of the Preferred Stock
                           aggregates approximately $1,125,900.

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 affect the reported
                           amounts of assets and liabilities and disclosure of
                           contingent assets and liabilities at the date of the
                           financial statements and the reported amounts of
                           revenues and expenses during the reporting period.
                           Actual results could differ from those estimates.


PROPERTY                   Property and equipment is stated at cost, maintenance
AND EQUIPMENT              and repairs are charged to operations. As of June 30,
                           1999 the Company is in the process of constructing
                           one robotic paint removal system which includes: two
                           (2) paint stripping robots and all ancillary
                           equipment necessary for their operation and
                           transportation. Management will begin to accumulate
                           depreciation using accelerated methods on property
                           and equipment when it is placed in service.

LONG-LIVED ASSETS          The Company evaluates the recoverability of
                           long-lived assets by measuring the carrying amount of
                           the assets against the estimated undiscounted future
                           cash flows associated with them. At such time the
                           evaluations indicate that the future undiscounted
                           cash flows of the long-lived assets would not be
                           sufficient to recover the carrying value of such
                           assets, the assets would be adjusted to their fair
                           values.

ADVERTISING                The Company conducts advertising for the promotion of
                           its products. Advertising costs are charged to
                           operations when incurred; such amounts aggregated
                           $59,300 for the six months ended June 30, 1999 and $0
                           for the six months ended June 30, 1998.

INCOME TAXES               The Company accounts for income taxes pursuant to the
                           provisions of Statement of Financial Accounting
                           Standards (SFAS) No. 109, "Accounting for Income
                           Taxes," which requires, among other things, a
                           liability approach to calculating deferred income
                           taxes. The asset and liability approach requires the

                                       5
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


                           recognition of deferred tax liabilities and assets
                           for the expected future tax consequences of temporary
                           differences between the carrying amounts and the tax
                           bases of assets and liabilities.

LOSS PER SHARE             Basic loss per share is computed on the basis of the
                           weighted average number of common shares outstanding
                           during each period presented. Diluted loss per share
                           is computed on the basis of the weighted average
                           number of common shares and dilutive securities
                           outstanding. Dilutive securities having an
                           antidilutive effect on diluted loss per share are
                           excluded from the calculation.


                                       6
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

1.      GOING CONCERN      The accompanying financial statements were prepared
                           assuming that the Company will continue as a going
                           concern. This basis of accounting contemplates the
                           realization of assets and the satisfaction of its
                           liabilities in the normal course of operations. Since
                           inception the Company has incurred losses of
                           approximately $1.8 million, has outstanding
                           redeemable preferred stock that can become
                           mandatorily redeemable after June 2002 and has not
                           reached a profitable level of operations, all of
                           which raise substantial doubt about the Company's
                           ability to continue as a going concern.

                           The Company's continued existence is dependent upon
                           its ability to resolve its liquidity problems,
                           principally by obtaining additional debt financing
                           and equity capital. While pursuing additional debt
                           and equity funding, the Company must continue to
                           operate on limited cash flow generated internally.

                           The financial statements do not include any
                           adjustments to reflect the possible future effects on
                           the recoverability and classification of assets or
                           the amounts and classification of liabilities that
                           may result from the possible inability of the Company
                           to continue as a going concern.

                           Accordingly, there are no assurances that the Company
                           will be successful in achieving the above plans, or
                           that such plans, if consummated, will enable the
                           Company to obtain profitable operations or continue
                           as a going concern.

2.      PROPERTY AND       Property and equipment consist of the following:
        EQUIPMENT

<TABLE>
<CAPTION>
                                                                                       Estimated
                                                                                          Useful
                                  June 30,                                                  Life           1999
                                  ---------------------------------------------------------------------------------
<S>                                                                                      <C>      <C>
                                  Machinery and equipment                                5 years  $   1,301,734
                                  Furniture and fixtures                                 7 years            770
                                  Automobile and trucks                                  5 years        156,119
                                  Leasehold improvements                                 5 years              -
                                  Office equipment                                       5 years         34,504
                                  ---------------------------------------------------------------------------------
                                                                                                      1,493,127
                                  Less accumulated depreciation and
                                           amortization                                                  (3,528)
                                  ---------------------------------------------------------------------------------

                                                                                                  $   1,489,599
                                  =================================================================================
</TABLE>

                                       7
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
3.      NOTES PAYABLE TO          Notes payable to shareholders
        SHAREHOLDERS                consist of the following:

                                  June 30,                                                                 1999
                                  ---------------------------------------------------------------------------------

<S>                                                                                      <C>
                                  Unsecured notes payable to
                                  employee/shareholder, noninterest
                                  bearing, due upon demand                                      $       149,962
                                  ---------------------------------------------------------------------------------
                                                                                                        149,962

                                  Less current portion (a)                                                    -
                                  ---------------------------------------------------------------------------------

                                                                                                $       149,962
                                  =================================================================================

                                    (a)      Though these notes are due on
                                             demand, the Company and the
                                             employee/shareholder(s)
                                             renegotiated these notes over a
                                             longer term in 2001.

4.      NOTES PAYABLE             Notes payable consist of the following:

                                  June 30,                                                                   1999
                                  -------------------------------------------------------------------------------

                                    Installment notes payable to banks, payable
                                    $1,336 monthly including interest at 10.99%,
                                    through July 2009 collateralized by trucks                       $     96,119

                                  -------------------------------------------------------------------------------
                                                                                                           96,119

                                  Less current portion                                                     (4,244)
                                  --------------------------------------------------------------------------------

                                                                                                     $     91,875
                                  ================================================================================

                                  Aggregate notes payable at June 30, 1999
                                  consists of the following:

                                  --------------------------------------------------------------------------------
                                  Notes payable shareholders                                         $     149,962
                                  Notes payable                                                      $      96,119
                                  --------------------------------------------------------------------------------

                                                                                                     $     246,081
                                  ================================================================================
</TABLE>

5.      COMMON STOCK                During the six months ended June 30, 1999
                                    the Company issued 41,000 shares to a
                                    shareholder and member of the Company's
                                    Board of Directors of restricted,
                                    unregistered common stock in exchange for
                                    consulting services. The issuances were
                                    valued at estimated fair value of $4.17 per
                                    share. In connection therewith,



                                       8
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


                                    the Company recorded a charge to operations
                                    in the amount of $170,970 during 1999.

                                    At June 30, 1999, 2,068,450 shares of Common
                                    Stock were reserved for issuance for
                                    outstanding non-plan options, warrants and,
                                    upon conversion of the outstanding Series A
                                    Redeemable Convertible Cumulative Preferred
                                    Stock.

                                    The following reconciles the components of
                                    the loss per share computation:
<TABLE>
<CAPTION>
                                    For the six months ended June 30,                     1999                          1998
                                    --------------------------------------------------------------------------------------------

                                                                                                                        Per-
                                                      Income        Shares      Per-Share    Income        Shares       Share
                                                   (Numerator)   (Denominator)  Amount    (Numerator)    (Denominator)  Amount
                                    --------------------------------------------------------------------------------------------
<S>                                                  <C>          <C>                     <C>           <C>           <C>
                                  Loss per common
                                    share
                                  Net (loss) available
                                    to common
                                    shareholders   $ (1,034,656)  9,247,542   $  (0.11)   $ (277,300)     8,422,362    $  (0.03)

                                  Effect of Dilutive
                                  Securities:
                                    Stock
                                    options/warrants         -          -           -            -            -             -
                                  ----------------------------------------------------------------------------------------------
                                  Net (loss)
                                    available
                                    to common
                                    shareholders plus
                                    assumed
                                    conversions    $ (1,034,656)  9,247,542   $  (0.11)   $ (277,300)     8,422,362    $  (0.03)
                                  ==============================================================================================
</TABLE>

                                   The Company's outstanding options and
                                   warrants to acquire common stock and shares
                                   of common stock issuable upon conversion of
                                   outstanding redeemable convertible cumulative
                                   preferred stock (all aggregating 2,068,450
                                   and 413,450 shares of common stock at June
                                   30, 1999 and 1998, respectively) are not
                                   included in the computation of loss per share
                                   because the effects of inclusion would be
                                   anti-dilutive.


6.      REDEEMABLE
        CONVERTIBLE
        CUMULATIVE           Series A
        PREFERRED STOCK      --------

                                   During the six months ended June 30, 1999,
                                   the Company issued 49 shares of Series A
                                   Redeemable Convertible Cumulative Preferred
                                   Stock at $25,000 per share for net proceeds
                                   of $1,225,000. The shares are redeemable at
                                   the option of the Company at $27,500 per
                                   share plus accrued dividends and are
                                   redeemable at the option of the holder any
                                   time after June 2002 at $25,000 per share
                                   plus accrued dividends.

                                       9
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

                                   The Series A Redeemable Convertible
                                   Cumulative Preferred Stock provides annual
                                   dividends, at the rate of $3,750 per share,
                                   payable in cash, which are cumulative and
                                   have priority over dividends on the Series B
                                   preferred and common stock. Dividends in
                                   arrears at June 30, 1999 were $27,539.

                                   Each share of Series A Redeemable Convertible
                                   Cumulative Preferred Stock is convertible
                                   into 6,000 shares of common stock at the
                                   holder's option. The Series A preferred shall
                                   automatically be converted into common stock
                                   in the event of an underwritten public
                                   offering. During the six months ended June
                                   30, 1999, 4 shares of Series A preferred
                                   stock were converted into 24,000 shares of
                                   common stock. In the event of dissolution,
                                   the holders of Series A preferred shall be
                                   entitled to receive $25,000 per share, plus
                                   accrued dividends, prior to any distribution
                                   to holders of common stock.


7.      STOCK OPTIONS AND
            WARRANTS               At June 30, 1999, the Company has non-plan
                                   options, which are described below. The
                                   Company applies APB Opinion No. 25,
                                   "Accounting for Stock Issued to Employees,"
                                   and related interpretations in accounting for
                                   employee stock options. Under APB Opinion No.
                                   25, in situations where the number of shares
                                   of common stock that may be acquired and the
                                   price to be paid are determinable at the date
                                   of grant, and the exercise price of the
                                   Company's employee stock options equals or
                                   exceeds the market price of the underlying
                                   stock on the date of grant, no compensation
                                   cost is recognized. For those grants where
                                   either the number of shares of common stock
                                   that may be acquired or the price to be paid
                                   are not determinable, the Company records
                                   estimates of compensation costs based upon
                                   the market value of the stock at each
                                   intervening financial statement date.

                                   During the six months ended June 30, 1999 and
                                   the period ended December 31, 1998, the
                                   Company granted options to employees and
                                   directors to acquire an aggregate 1,798,450
                                   shares of common stock which are exercisable,
                                   at the holders' option, in a cashless manner
                                   by surrendering options held on appreciated
                                   shares of common stock. For these options,
                                   the number of shares of common stock that may
                                   be acquired by the option holder cannot be
                                   determined prior to exercise of the option.
                                   Accordingly, the Company records estimates of
                                   compensation expense based upon the estimated
                                   fair value of the stock at each intervening
                                   financial



                                       10
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


                                   statement date, $214,016 and $0 for 1999 and
                                   1998, respectively.

                                   During the six months ended June 30, 1999 and
                                   1998, the Company granted options and
                                   warrants to acquire 100,000 and 413,450,
                                   respectively, shares of common stock to third
                                   parties as compensation for services rendered
                                   to the Company. The options and warrants are
                                   exercisable at prices ranging from $2.50 to
                                   $7.50 per share, substantially were fully
                                   vested at the date of grant and expire
                                   through 2002. The options and warrants are
                                   exercisable by payment of cash to the Company
                                   or, for substantially all of the options and
                                   warrants, at the holder's option, in a
                                   cashless manner by surrendering options and
                                   warrants held on appreciated shares of common
                                   stock. In connection with these grants, the
                                   fair value (Black Scholes value) of the
                                   options and warrants granted approximated the
                                   value of the services rendered, and the
                                   Company record expenses for the services
                                   rendered of $184,040 in 1999 and $139,720 in
                                   1998.

                                   A summary of the status of the Company's
                                   fixed stock option plans and non-plan options
                                   and warrants as of June 30, 1999 and changes
                                   during the year then ended is presented
                                   below:

<TABLE>
<CAPTION>
                                                                    Plan Options and        Non-Plan Options and
                                                                        Warrants                  Warrants
                                                                 ------------------------ -------------------------
                                                                     Weighted                Weighted
                                                                      Average                 Average
                                                                     Exercise                 Exercise
                                                                        Price    Shares        Price      Shares(1)
                                  -------------------------------------------------------------------------------------
<S>                                                             <C>               <C>        <C>         <C>
                                  Outstanding at beginning of   $           -          -      $  2.50    1,003,450
                                  year
                                  Granted                                   -          -         4.17      795,000
                                  Exercised                                 -          -            -            -
                                  Forfeited                                 -          -            -            -
                                  -------------------------------------------------------------------------------------

                                  Outstanding at June 30, 1999              -          -         3.24    1,798,450

                                  Exercisable at June 30, 1999  $           -          -         3.24    1,798,450
                                  =====================================================================================
                                  Weighted average fair value
                                  of options granted during     $                             $  1.84
                                  the period
                                  =====================================================================================
</TABLE>

                    (1)  Includes warrants to purchase 413,450 shares of common
                         stock which are the subject of litigation (Note 11)

                                       11
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

                    A summary of the status of the Company's fixed stock option
                    plans and non-plan options and warrants as of June 30, 1998
                    and changes during the six months then ended is presented
                    below:

<TABLE>
<CAPTION>
                                                                     Plan Options and         Non-Plan Options and
                                                                         Warrants                   Warrants
                                                                  ------------------------   ------------------------
                                                                     Weighted                   Weighted
                                                                      Average                    Average
                                                                     Exercise                    Exercise
                                                                        Price    Shares           Price       Shares
                                  -------------------------------------------------------------------------------------
                                 <S>                             <C>                <C>     <C>            <C>
                                  Outstanding at beginning of   $           -           -     $        -           -
                                  year
                                  Granted                                   -           -           2.50    1,003,450
                                  Exercised                                 -           -              -           -
                                  Forfeited                                 -           -              -           -
                                  -------------------------------------------------------------------------------------

                                  Outstanding at June 30, 1998              -           -           2.50    1,003,450

                                  Exercisable at June 30, 1998  $           -           -           2.50    1,003,450
                                  ====================================================================================

                                  Weighted average fair value
                                  of options granted            $           -                 $     0.35
                                  during the period
                                  =====================================================================================
</TABLE>

                                   SFAS No. 123, "Accounting for Stock-Based
                                   Compensation," establishes a fair value based
                                   method of accounting for stock-based
                                   compensation plans under which employees
                                   receive shares of stock or other equity
                                   instruments of the Company or the Company
                                   incurs liabilities to employees in amounts
                                   based on the price of its stock.

                                   The amounts of such Stock-Based Compensation
                                   may be expensed in a Company's financial
                                   statements or alternatively, companies may
                                   elect to disclose the amounts as pro forma
                                   information. The Company has elected to
                                   disclose the amounts, which approximate
                                   $41,346 and $0 for the periods ended June 30,
                                   1999 and 1998, respectively. Had the Company
                                   elected to recognize the amounts under the
                                   accounting provisions of SFAS 123, the
                                   Company's net loss and loss per share would
                                   have been increased to the pro forma amounts
                                   indicated below:

<TABLE>
<CAPTION>
                                 Six months ended June 30,                                1999            1998
                                 ----------------------------------------------------------------------------------
<S>                                                                                   <C>            <C>
                                 Net (loss) applicable to common stock as reported    $ (1,034,656)  $ (277,300)
                                 Net (loss) applicable to common stock pro forma        (1,076,002)    (277,300)
                                 Basic (loss) per share as reported                          (0.11)       (0.03)
                                 Basic (loss) per share pro forma                            (0.12)       (0.03)

                                   The Company estimates the fair value of each
                                   stock option at the grant date by using the
                                   Black-Scholes option pricing model based on
                                   the following assumptions:
</TABLE>

                                       12
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                              1999         1998
                                 ----------------------------------------------------------------------------------
<S>                                                                                           <C>          <C>
                                 Risk free interest rate                                      5.80 %       4.90   %
                                 Expected life                                             3 years      3 years
                                 Expected volatility                                            59 %          0   %
                                 Dividend yield                                                0.0          0.0
</TABLE>

8.      INCOME TAXES

                                 Deferred income taxes reflect the net tax
                                 effects of temporary differences between the
                                 carrying amounts of assets and liabilities for
                                 financial reporting purposes and the amounts
                                 used for income tax purposes. At December 31,
                                 1998, the Company had federal net operating
                                 losses (NOL) of approximately $1,122. The NOL
                                 expires 2018. In the event that a change in
                                 ownership of the Company of greater than 50
                                 percent occurs/occurred as a result of the
                                 Company's issuance of common and preferred
                                 stock, the utilization of the NOL carryforward
                                 will be subject to limitation under certain
                                 provisions of the Internal Revenue Code.

                                 Realization of any portion of the approximate
                                 $623,061 deferred federal tax asset at June 30,
                                 1999 is not considered more likely than not by
                                 management; accordingly, a valuation of
                                 allowance has been established for the full
                                 amount of such asset.

                                 The reconciliation of income tax benefit
                                 computed at the United States federal tax rate
                                 of 34% to income tax benefit is as follows:

<TABLE>
<CAPTION>
                                   Six months ended June 30,                           1999                1998
                                  --------------------------------------------------------------------------------
<S>                                                                                  <C>                  <C>
                                  Tax benefit at the United States
                                  statutory rate                              $     342,420          $   94,281
                                  State income tax benefit, net                      17,121               4,714
                                  Valuation allowance adjustment
                                                                                   (359,541)            (98,995)
                                  --------------------------------------------------------------------------------

                                  Income tax benefit                          $           -           $        -
                                  ================================================================================
</TABLE>

                                       13
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


                                   Significant components of the Company's
                                   deferred tax assets and liabilities are as
                                   follows:

<TABLE>
<CAPTION>
                                  June 30,                                              1999              1998
                                  ----------------------------------------------------------------------------------
<S>                                                                            <C>               <C>
                                  Deferred tax assets:
                                      Organizational costs                        $     162,695     $      51,109
                                      Net operating loss
                                      carryforwards                                     279,616               381
                                      Compensation related to equity
                                      instruments issued for
                                      services                                          180,750            47,505
                                  ----------------------------------------------------------------------------------
                                  Valuation allowance for deferred
                                      tax assets                                       (623,061)          (98,995)
                                  ----------------------------------------------------------------------------------

                                  Net deferred tax asset                           $          -      $          -
                                  ----------------------------------------------------------------------------------
</TABLE>


9.      COMMITMENT AND           The Company currently maintains office
        CONTINGENCIES            facilities in Stuart, Florida. The Company does
                                 not currently own or operate any manufacturing,
                                 operating or shipbuilding or repair facilities.
                                 Substantially all of the Company's operations
                                 are devoted to the removal of paint, the
                                 disposal of which is regulated by various
                                 federal state and international laws.
                                 Compliance with these provisions has not had,
                                 nor does the Company expect to have, any
                                 material affect upon the capital expenditures,
                                 results of operations, financial condition or
                                 competitive position of the Company. The
                                 Company believes that it is in substantial
                                 compliance with all environmental laws and
                                 regulations applicable to its business as
                                 currently conducted.

                                 The Company has consulting agreements with
                                 certain officers calling for aggregate annual
                                 base compensation of approximately $338,000,
                                 expiring through 2000. As of June 30, 1999,
                                 accounts payable and accrued expenses include
                                 $52,500 of accrued compensation.

                                 The Company rents office space under an
                                 operating lease expiring in July 2000.

10.     SUPPLEMENTAL CASH FLOW   Supplemental disclosure is as follows:
        INFORMATION

<TABLE>
<CAPTION>
                                  June 30,                                                 1999              1998
                                  ----------------------------------------------------------------------------------
<S>                                                                             <C>               <C>
                                  Cash paid for interest                        $             -   $             -
                                  Cash paid for taxes                                         -                 -

                                  Non-cash investing and financing activities:

                                  Conversion of preferred stock to
                                      common stock                              $       100,000   $             -

                                  Accrued preferred stock dividends             $        27,539   $             -
</TABLE>


                                       14
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS



11.     SUBSEQUENT EVENTS  (a)      On August 18, 2000, the Company adopted a
                                    Long Term Incentive Program, which provides
                                    for the granting of 4,000,000 stock options
                                    and stock appreciation rights (SARs) to key
                                    employees. Options granted may be either
                                    "incentive stock options," within the
                                    meaning of Section 422 of the Internal
                                    Revenue Code, non-qualified options, or
                                    restricted stock awards. The stock options
                                    are exercisable for a period no longer than
                                    ten years after the date they are granted.
                                    As of December 31, 2001, options to purchase
                                    550,000 shares of common stock at prices
                                    ranging from $3.00 to $5.00 per share have
                                    been granted pursuant to the plan.
                           (b)      In November 1999, the Board of Directors
                                    authorized an amendment to the Company's
                                    charter to increase the number of shares of
                                    common stock from 40,000,000 to 100,000,000
                                    and authorized a stock split so that each
                                    one share of common stock outstanding became
                                    four shares of common stock outstanding.
                                    Prior to the split 40,000,000 shares were
                                    authorized, 9,384,969 common shares were
                                    issued and outstanding. Subsequent to the
                                    stock split 100,000,000 common shares were
                                    authorized and 37,539,876 shares were issued
                                    and outstanding.
                           (c)      During 1999, the Company issued 41,474
                                    (165,896 post split) shares of restricted,
                                    unregistered common stock for net proceeds
                                    of $300,714. The Company also received
                                    subscriptions for an additional 10,000
                                    (40,000 shares post split) shares of common
                                    stock for net proceeds of $75,000. These
                                    shares will be issued to the subscriber
                                    after certain issues are resolved by the
                                    investor.
                           (d)      The Company had entered into an option to
                                    purchase assets and licensing agreement with
                                    a related corporation concerning the use and
                                    ownership of U.S. Patent No. 5,628,271
                                    issued on May 13, 1997 entitled Apparatus
                                    and Method for Removing Coatings from the
                                    Hulls of Vessels using Ultra-high Pressure
                                    Water (the "Patent"). Under the terms of the
                                    agreement, the Company was to pay $50,000
                                    for each paint stripping robot produced. The
                                    amounts paid under the agreement were
                                    capitalized by the Company. Total payments
                                    made under the agreement were $161,500,
                                    which included royalties for the two robots
                                    completed and payments for anticipated
                                    robots prior to the purchase of the Patent.
                                    The Company exercised an option under the
                                    above agreement and acquired the Patent on
                                    December 17, 1999.

                                       15
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


                                    The Patent was acquired through the issuance
                                    of 1,000,000 shares of restricted common
                                    stock of the Company and $61,500 of prepaid
                                    royalties in exchange for ownership of the
                                    Patent and all rights pertaining to the
                                    Patent holder. According to SAB 48, since
                                    the owners of Amclean, Inc. retained a
                                    substantial indirect interest in the patent
                                    through their ownership of shares of
                                    Ultrastrip Systems, Inc., the Company
                                    recorded the value of the patent at $95,109,
                                    which is the historical cost basis of the
                                    patent as recorded by Amclean, Inc., the
                                    related party seller. Amclean's (the seller)
                                    interest in the Company subsequent to the
                                    transfer of the patent was 2.5% of the total
                                    stockholders common stock equity.
                                    Immediately subsequent to the acquisition of
                                    the patent, 85% of the shareholders of
                                    Amclean, Inc. owned 53% of the stock in
                                    Ultrastrip Systems, Inc.
                           (e)      On August 15, 1999, the Company adopted an
                                    Outside Directors Stock Option Plan, which
                                    provides for the granting of 500,000 stock
                                    options (2,000,000 post-split) to members of
                                    the Board who are not full or part time
                                    employees of the Company. Under the plan,
                                    each eligible director will be granted an
                                    option to purchase up to 50,000 (200,000
                                    post-split) shares on the date the person is
                                    elected to the Board and will be granted an
                                    option to purchase 50,000 shares upon
                                    reelection to the Board at each annual
                                    shareholders meeting. The stock options are
                                    not exercisable until six months after the
                                    grant date and are exercisable over a
                                    five-year period. As of December 31, 1999,
                                    options to purchase 250,000 shares
                                    (1,000,000 post- split) of common stock at a
                                    price of $1.875 per share have been granted
                                    pursuant to the plan.
                           (f)      On September 3, 1999 the Company entered
                                    into a Development Agreement with Carnegie
                                    Mellon University, through the National
                                    Robotics Engineering Consortium ("NREC"), to
                                    develop technologies based on the Company's
                                    base technology for ultra high-pressure
                                    coatings removal. The project director of
                                    NREC is a director of the Company. In
                                    accordance with the agreement, any
                                    technology developed by the Company prior to
                                    entering into the Development Agreement or
                                    developed without NREC's assistance will
                                    belong exclusively to the Company. New
                                    technology or technology that may be used
                                    outside the field of ultra high-pressure
                                    cleaning will belong to NREC, however, the
                                    Company will have the right to license the
                                    technology if it

                                       16
<PAGE>


                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

                                    is based on funds provided by the Company.
                           (g)      The Company has entered into two leases for
                                    office and storage space. One is scheduled
                                    to begin September 1st, 2000 and the second
                                    is contingent on the construction of a
                                    building which is estimated to be completed
                                    in November, 2000. The first lease calls for
                                    lease payments of $56,250 per annum over a
                                    five year period and the second lease calls
                                    for lease payment of $46,800 per annum over
                                    a five year period.
                           (h)      On September 1, 2000 the Company entered
                                    into an agreement with Wallem Shipmanagement
                                    Limited ("Wallem") whereby Wallem will
                                    provide all of the Company's management and
                                    marketing for its contract services in the
                                    heavy marine industry. The managing director
                                    of Wallem is a director of the Company.
                           (i)      On July 17, 2000 the Company entered into a
                                    License Agreement with Ocean Futures Society
                                    ("OFS") and Jean-Michel Cousteau, a director
                                    of the Company, whereby the Company agreed
                                    to pay OFS 2% of its revenues from sales of
                                    products, equipment leases and services in
                                    exchange for the exclusive right to utilize
                                    their names in connection with marketing,
                                    advertising, sales and distribution of the
                                    M2000 and hydro blasting services in the
                                    ship cleaning industry.
                           (j)      During the year ended December 31, 2000, the
                                    Company issued 400,000 shares of restricted,
                                    unregistered common stock at estimated fair
                                    value of $2.00 per share in exchange for
                                    investment banking advisory services. In
                                    connection therewith, the Company recorded a
                                    charge to operations in the amount of
                                    $800,000 during 2000. The shares were freely
                                    returned to the Company in June 2002.
                           (k)      During the year ended December 31, 2000, the
                                    Company issued 1,292 shares of Series B
                                    Redeemable Convertible Cumulative Preferred
                                    Stock at $2,500 per share for net proceeds
                                    of $3,230,000, of which $200,000 was not
                                    received until 2001. The shares are
                                    redeemable at the option of the Company at
                                    $3,000 per share plus accrued dividends and
                                    are redeemable at the option of the holder
                                    anytime after June 2002 at $2,500 per share
                                    plus accrued dividends. The Series B
                                    Redeemable Convertible Cumulative preferred
                                    stock provides annual dividends, at the rate
                                    of $250 per share, payable in cash, which
                                    are cumulative and have priority over
                                    dividends on the common stock. Each share of
                                    Series B preferred is convertible into 835
                                    shares of common stock at the holder's

                                       17
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

                                    option. The Series B preferred shall
                                    automatically be converted into common stock
                                    in the event of an underwritten public
                                    offering. During the years ended December
                                    31, 2001 and 2000, 102 and 134 shares of
                                    Series B preferred stock were converted into
                                    85,170 and 111,890 shares of common stock,
                                    respectively. In the event of dissolution,
                                    the holders of Series B preferred shall be
                                    entitled to receive $3,000 per share, plus
                                    accrued dividends, prior to any distribution
                                    to holders of common stock.
                           (l)      During the year ended December 31, 2001 the
                                    Company renegotiated the notes payable to
                                    shareholders for amounts borrowed to date as
                                    described below:

<TABLE>
<CAPTION>
                                   <S>                                                             <C>
                                           Unsecured notes payable to
                                           employee/shareholder, interest at
                                           prime plus 2% (6.75% at December 31,
                                           2001), $450,000 plus accrued interest
                                           repayable in 2002, balance due March
                                           1, 2003, subject to earlier
                                           repayments upon (1) a public offering
                                           of the Company's common stock or debt
                                           securities or (2) in
                                           installments equal to 20% of revenues                $        566,544
                                           earned and collected by the Company
                                           subsequent to March 1, 2002 (a)

                                           Unsecured note payable to
                                           employee/shareholder, interest at prime
                                           plus 2% (6.75% at December 31, 2001), due                     517,893
                                           April 10, 2003
</TABLE>

                                    Through August 30, 2002, $410,000 had been
                                    repaid toward the first note above.

                           (m)      During the year ended December 31, 2001, the
                                    Company issued a promissory note for
                                    $1,000,000 to a shareholder and Advisory
                                    Board member with a due date of October 19,
                                    2002 secured by all existing equipment and
                                    machinery utilized to manufacture the
                                    Company's product. In connection with this
                                    promissory note, the Company granted
                                    warrants to acquire 100,000 shares of Common
                                    Stock.
                           (n)      In December 2001, the Company filed a
                                    complaint in the Circuit Court in and for
                                    Palm Beach Country, Florida against Mark H.
                                    Mirkin and Mirkin & Woolf, P.A., the
                                    Company's former corporate and securities
                                    counsel and transfer agent, seeking a
                                    declaration from the court that a warrant to
                                    purchase 1,653,800 shares of the Company's
                                    common stock for $0.625 per share was
                                    improperly obtained by Mirkin & Woolf, P.A.
                                    in April 1998 and is void. Mirkin & Woolf
                                    attempted to exercise the warrant in April
                                    of 2001. The Company has not issued the
                                    underlying


                                       18
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

                                    shares of common stock. In May 2002, the
                                    complaint was amended to drop Mark H. Mirkin
                                    as an individual defendant. The Company and
                                    its counsel believe that they will prevail
                                    in this action and that it will suffer no
                                    materially adverse impact as a result of
                                    Mirkin & Woolf's counter claims with respect
                                    to the warrant.
                           (o)      During the year ended December 31, 2001 the
                                    Company issued 120,000 shares (50,000 to a
                                    member of the Company's Board of Directors
                                    and 70,000 to third parties) of restricted,
                                    unregistered common stock in exchange for
                                    consulting services. The issuances were
                                    valued at estimated fair value ranging from
                                    $2.88 - $4.40 per share. In connection
                                    therewith, the Company recorded a charge to
                                    operations in the amount of $382,000 during
                                    2001, of which $150,000 was for the services
                                    provided by the Board member.
                           (p)      During 2000, the Company issued 872,374
                                    shares of restricted, unregistered common
                                    stock for net proceeds of $1,865,276.
                           (q)      During 2001, the Company issued 1,168,369
                                    shares of restricted, unregistered common
                                    stock for net proceeds of $4,007,159.
                           (r)      During the years ended December 31, 2001 and
                                    2000, the Company granted options to acquire
                                    7,750,000 and 1,550,000, respectively,
                                    shares of common stock to employees and
                                    members of the Company's Board of Directors.
                                    The options are exercisable at $3.00 to
                                    $5.00 per share, vesting over periods
                                    ranging from immediate to 2006.
                           (s)      During the years ended December 31, 2001 and
                                    2000, the Company granted options and
                                    warrants to acquire 380,000 and 1,650,000,
                                    respectively, shares of common stock to
                                    third parties as compensation for services
                                    rendered to the Company. The options and
                                    warrants are exercisable at $0.07 to $5.00
                                    per share, substantially were fully vested
                                    at the date of grant and expire through
                                    2021. The options and warrants are
                                    exercisable by payment of cash to the
                                    Company or, for substantially all of the
                                    options and warrants, at the holders'
                                    option, in a cashless manner by surrendering
                                    options and warrants held on appreciated
                                    shares of common stock. In connection with
                                    these grants, the fair value (Black-Scholes
                                    value) of the options and warrants granted
                                    approximated the value of the services
                                    rendered, and the Company recorded expenses
                                    for the


                                       19
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

                                    services rendered of $173,160 in 2001 and
                                    $2,155,423 in 2000. Additionally, deferred
                                    compensation of $65,576 was recorded in 2001
                                    and will be amortized to expense during 2002
                                    to 2004.
                           (t)      During the year ended December 31, 2001, the
                                    Company entered into employment agreements
                                    with ten (10) officers and directors of
                                    operations. The minimum annual wages payable
                                    under these agreements is $1,150,000 in the
                                    aggregate.
                           (u)      During the year ended December 31, 2001, the
                                    Company also issued 725,000 shares of
                                    restricted, unregistered common stock as
                                    part of the new compensation package
                                    described in (t). According to the original
                                    terms there were no vesting requirements,
                                    however, on March 31, 2002 the executives
                                    agreed to a vesting schedule. These
                                    issuances were valued at estimated fair
                                    value of $2.88 per share. Accordingly, the
                                    Company recorded a charge to operations in
                                    the amount of $2,088,000 during 2001.
                           (v)      At December 31, 2001, the Company has
                                    commitments with certain of its vendors,
                                    including NREC and Carnegie Mellon
                                    University amounting to approximately
                                    $780,000 for the purchase of equipment.
                                    Through September 2002, $600,000 has been
                                    paid to Carnegie Mellon University to meet
                                    these commitments.
                           (w)      During the year ended December 31, 2001, the
                                    Company commenced operations and generated
                                    $1,708,077 in revenues. Revenues for 2001
                                    were generated by two primary lines of
                                    business - equipment sales and service
                                    contracts. Revenues from equipment sales
                                    were $850,000, while cost of equipment sales
                                    was $1,803,219. Revenues from service
                                    contracts were $858,077, while cost of
                                    service contracts was $1,413,191.
                           (x)      On February 21, 2002, the Company signed an
                                    agreement to borrow up to $200,000, with
                                    interest at 18% per year. The loan is due
                                    August 25, 2002. The loan is guaranteed by
                                    the President of the Company and his spouse.
                                    On February 26, 2002 the Company borrowed
                                    $200,000. In this connection, the Company
                                    granted warrants to acquire 8,001 shares of
                                    common stock and valued such warrants at
                                    $14,000 based on the relative fair value of
                                    the warrants. The warrants are exercisable
                                    at $0.07 per share, were fully vested at the
                                    date of grant and expire in 2022. As such,
                                    the Company recorded $186,000 as debt, net
                                    of the allocation of the proceeds to the
                                    warrants as paid-in capital of

                                       20
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


                                    $14,000. The Company will amortize to
                                    interest expense the value ascribed to the
                                    warrants over the term of the debt. This
                                    note was extended on August 25, 2002 for an
                                    additional six months.
                           (y)      In September 2001 the, Company signed an
                                    exclusive distribution agreement with
                                    Robotic Environmental Services, LLC (RES)
                                    for the sale of the Company's automated
                                    hydro-blasting systems in Louisiana and
                                    Texas. In connection with this agreement,
                                    RES purchased its first UltraStrip automated
                                    hydro-blasting system. In March 2002 RES
                                    failed to meet certain contract requirements
                                    under this distribution agreement.
                                    In this connection, the Company terminated
                                    its distribution agreement, including the
                                    related exclusivity provision.
                           (z)      On May 13, 2002, the Company entered into a
                                    Development and Supply agreement to sell a
                                    prototype robotic paint removal system to a
                                    shipyard in Norfolk, Virginia for $2
                                    million, of which $500,000 was received in
                                    May 2002. Spare parts and accessories were
                                    subsequently added to the order, increasing
                                    the purchase price to $2.3 million. $1.5
                                    million was paid on August 21, 2002, upon
                                    delivery and acceptance of the equipment at
                                    the buyer's shipyard. The balance is due on
                                    September 10, 2002. Under the 16 year
                                    cooperative agreement the buyer intends to
                                    further develop and refine the paint removal
                                    system for use in the buyer's shipyard and
                                    to make and sell the Company's paint removal
                                    system as part of the buyers' ship coating
                                    system.
                           (aa)     Subsequent to December 31, 2001, the Company
                                    executed several agreements to borrow an
                                    aggregate of $265,000 from various officers
                                    of the Company and related parties. These
                                    notes are repayable one year from their
                                    respective agreement dates and bear interest
                                    at prime plus 2%. Through September 2002,
                                    $75,000 of these notes had been repaid.
                           (bb)     In June 2002 the Company sold warrants to
                                    acquire 1,125,000 shares of the Company's
                                    common stock for $500,000. The warrants are
                                    exercisable at $0.10 per share, were fully
                                    vested on the date of grant and expire in
                                    June 2009.
                           (cc)     Also in June 2002 the Company entered into
                                    an agreement to sell 115,385 shares of
                                    common stock to an accredited investor for
                                    $150,000 in a transaction exempt under
                                    Section 4(2) of the Securities Act of 1933.

                                       21
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

                           (dd)     Also in June 2002, the Company conducted a
                                    demonstration of its automated
                                    hydro-blasting systems for Atlantic Dry Dock
                                    Corporation in Jacksonville, Florida,
                                    removing coatings from the outside hull of
                                    the USS DOYLE, a U.S. Navy guided missile
                                    frigate. Revenues from this demonstration
                                    were $22,223.
                           (ee)     On July 30, 2002, Dennis McGuire was awarded
                                    U.S. Patent No. 6,425,340 which granted
                                    exclusive use of the method and apparatus
                                    for removing coatings from ship hulls using
                                    a magnetic-attraction vehicle and an
                                    ultra-high pressure water jet system. Mr.
                                    McGuire subsequently assigned this patent to
                                    the Company.

                                       22
<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

Certain statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" are forward-looking statements that involve
risks and uncertainties. Words such as may, will, should, would, anticipates,
expects, intends, plans, believes, seeks, estimates and similar expressions
identify such forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Company assumes no obligation to update
these forward-looking statements to reflect actual results or changes in factors
or assumptions affecting forward-looking statements.

BACKGROUND AND FINANCIAL HISTORY

Since UltraStrip Systems, Inc. (the "Company") was incorporated on April 2,
1998, the Company has operated as a development stage enterprise and is devoting
substantially all its efforts to the ongoing development of the Company. The
Company is developing an automated hydro-blasting system that uses ultra-high
water pressure to remove coatings from steel surfaces. Two U.S. patents issued
to the Company's founder, Dennis McGuire, in 1997 and 1998 apply to the
Company's product.

The business of designing, developing, marketing, and selling the Company's
automated hydro-blasting systems is capital intensive. The Company intends to
continue its developing and marketing efforts and will require additional
capital in order to continue operating at the current level, to expand its
business, and to fund production and development costs. Additional capital
financing may not be available. Without such financing, the Company will not be
able to continue at its present operational level or fully implement its
business plan.

The Company has been unable to generate sufficient cash flow from operations
throughout its history to fund operations, including its research and
development and marketing plans. Since its inception on April 2, 1998, the
Company has generated no revenues. During this same period, the Company recorded
net losses applicable to common stock of $1,772,801. The Company generated
$2,324,102 from financing activities during this period to help fund the
shortfall in working capital.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO PERIOD FROM APRIL 2 (INCEPTION) TO
JUNE 30, 1998

During the three months ended June 30, 1999, the Company believes that it made
substantial progress toward development of a commercially-viable automated
hydro-blasting system. The Company remains primarily in a development stage and
anticipates commencing revenue-generating operations within the next two years.
As such, the Company's primary operational activities in the first three months
of 1999 related to research and development.

                                       23
<PAGE>

The Company did not generate any revenues during the three months ended June 30,
1999. Revenues were $0 for both the three months ended June 30, 1999 and the
period from April 2 to June 30, 1998.

Development stage expenses increased from $277,300 for the period from April 2
to June 30, 1998 to $821,687 for the three months ended June 30, 1999. The
primary components of development stage expenses were selling, general and
administrative expenses and non-cash compensation expenses.

Selling, general and administrative expenses, excluding non-cash compensation,
increased from $54,938 for the period from April 2 to June 30, 1998 to $252,661
for the three months ended June 30, 1999. This increase is due to an expansion
of the Company's operating activities through the hiring of three Company
officers, new consulting agreements, as well as advertising and travel expenses.

Non-cash compensation expenses increased from $222,362 for the period from April
2 to June 30, 1998 to $569,026 for the three months ended June 30, 1999. This
increase is largely attributable to variable accounting charges of $214,016 from
stock options to employees and directors with cashless conversion provisions.
For these options, the number of shares of common stock that may be acquired by
the option holder cannot be determined prior to the exercise of the option. The
Company records estimates of compensation expense for these options based upon
the estimated fair value of the stock at each intervening financial statement
date. These charges were incurred when the estimated fair value of the Company's
common stock increased to $1.04 per share.

Loss from operations for the three months ended June 30, 1999 was $821,687 as
compared to $277,300 for the period from April 2 to June 30, 1998. Preferred
Stock dividends were $27,539 for the three months ended June 30, 1999 and $0 for
the period from April 2 to June 30, 1998. Net loss applicable to Common Stock
was $849,226 for the three months ended June 30, 1999, compared to $277,300 for
the period from April 2 to June 30, 1998. Loss per common share was $0.09 for
the three months ended June 30, 1999 and $0.03 for the period from April 2 to
June 30, 1998.

SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO PERIOD FROM APRIL 2 (INCEPTION) TO
JUNE 30, 1998

The Company did not generate any revenues during the six months ended June 30,
1999. Revenues were $0 for both the six months ended June 30, 1999 and the
period from April 2 to June 30, 1998.

Development stage expenses increased from $277,300 for the period from April 2
to June 30, 1998 to $1,007,117 for the six months ended June 30, 1999. The
primary components of development stage expenses were selling, general and
administrative expenses and non-cash compensation expenses. Selling, general and
administrative expenses, excluding non-cash compensation, increased from $54,938
for the period from April 2 to June 30, 1998 to $438,091

                                       24
<PAGE>


for the six months ended June 30, 1999. Non-cash compensation expenses increased
from $222,362 for the period from April 2 to June 30, 1998 to $569,026 for the
six months ended June 30, 1999.

Loss from operations for the six months ended June 30, 1999 was $1,007,117 as
compared to $277,300 for the period from April 2 to June 30, 1998. Preferred
Stock dividends were $27,539 for the six months ended June 30, 1999 and $0 for
the period from April 2 to June 30, 1998. Net loss applicable to Common Stock
was $1,034,656 for the six months ended June 30, 1999, compared to $277,300 for
the period from April 2 to June 30, 1998. Loss per common share was $0.11 for
the six months ended June 30, 1999 and $0.03 for the period from April 2 to June
30, 1998.

LIQUIDITY AND CAPITAL RESOURCES

The Company continues to experience losses from operations and is dependent on
outside sources of funding to continue its operations.

As of June 30, 1999, the Company's cash and cash equivalents on hand were
$35,927, compared to $24,384 as of December 31, 1998. This increase was
primarily due to the sale of restricted, unregistered shares of preferred stock,
described below. However, despite this increase, Management recognizes that the
Company has a continuing need to raise capital to fund its daily operations and
research and development activities.

Since inception, the Company has relied principally upon the proceeds of private
equity financings and loans to fund its working capital requirements and capital
expenditures. The Company has generated no revenues from operations to date. Net
cash used by operating activities was $265,804 for the six months ended June 30,
1999, compared to $72,771 for the period from April 2 to June 30, 1998. This
increase resulted from increases in the Company's net loss, offset by increases
in accounts payable and accrued expenses. Net cash used in operating activities
during the first six months of 1999 does not include non-cash charges of $3,528
for depreciation, $170,970 for issuance of Common Stock for services, $184,040
for options granted to service providers, and $214,016 for non-cash compensation
to employees and directors.

The Company's net cash used in investing activities increased from $2,244 in the
period from April 2 to June 30, 1998 to $1,193,735 in the six months ended June
30, 1999, primarily as a result of new machinery and equipment purchases.

During the six months ended June 30, 1999, the Company incurred long-term debt
from significant shareholders in the amount of $149,962. These loans payable by
the Company to certain of its shareholders are unsecured, non-interest bearing,
and due upon demand. During the period from February to June 1999, the Company
issued 49 shares of Series A Redeemable Convertible Cumulative Preferred Stock
for net proceeds of $1,225,000 through a private placement pursuant to Rule 506
of Regulation D as promulgated under the 1933 Act. In April 1999, the Company
issued 41,000 restricted, unregistered shares of Common Stock valued at

                                       25
<PAGE>

$170,970 to a shareholder and member of the Company's Board of Directors for
consulting services. The Company's net cash provided by financing activities
rose to $1,471,082 for the six months ended June 30, 1999 from $75,100 for the
period from April 2 to June 30, 1998.

The Company lacks assured available financial resources to meet its June 30,
1999 working capital deficit of $59,913 and future operating costs.

Due to insufficient cash generated from operations, the Company presently does
not have cash available to pay its accounts payable and other liabilities.
Obligations are being met on a month-to-month basis as cash becomes available.
There can be no assurances that the Company's present flow of cash will be
sufficient to meet current and future obligations. The Company has incurred
losses since its inception, and continues to require additional capital to fund
operations and development. As such, the Company's ability to pay its already
incurred obligations is mostly dependent on the Company raising additional
capital in the form of equity or debt.

The Company's short-term and long-term liquidity requirements are expected to
result from working capital needs to purchase inventory, retire existing trade
liabilities and redeemable preferred stock and to pay other operating expenses.
Although the Company cannot accurately predict the precise timing of its future
capital expenditures, the Company estimates that it will need to expend
approximately $5.0 million, within the next twelve months. The Company estimates
that of that amount (i) $0.5 million will be for research and development (ii)
$0.2 million for sales and marketing forces, (iii) $0.3 million for professional
fees, (iv) $2.2 million for other operating expenses, such as payroll, rent and
office expense, and (v) $1.8 million for investment in property and equipment.

PLAN OF OPERATIONS

As of August 15, 1999, the Company's plan of operation for the next twelve
months is to focus on completion of its development efforts for a
commercially-viable robot, to launch the robot once completed, and to begin
sales and marketing efforts to place its robotic systems into use in the heavy
marine and above ground storage tank markets. The Company believes the most
effective marketing effort for its product will be to conduct live
demonstrations at the development site in Pittsburgh, Pennsylvania and in
shipyards throughout the world, to introduce the marine industry to robotic
hydro-blasting and demonstrate its superiority to existing surface preparation
methods and competitive technologies.

The Company plans to offer two primary sales options: outright equipment
purchase and long-term rental contracts. No such agreements or commitments are
currently in place. Under the Company's business plan, future revenues are also
expected from the sale of spare parts and accessories to those customers that
have purchased or rented robotic hydro-blasting systems. No such spare parts
purchase agreement or commitment has been made to date.

Should the Company receive the number of purchase orders and rental contracts it
is forecasting over the next twelve months and the sales and rental prices it is
currently forecasting over the next twelve months, the Company should be able to
generate sufficient cash flow to sustain

                                       26
<PAGE>

operations and meet all payable obligations for the next twelve months. However,
should the number of purchase orders or rental contracts be less than currently
forecasted, or should the sales or rental prices be less than currently
forecasted, there can be no assurance that the Company will be able to generate
sufficient cash flow to sustain operations and meet all payable obligations for
the next twelve months.

The Company does not currently anticipate any significant changes in its total
number of employees over the next twelve months. The Company currently relies on
consultants to provide many important operational and administrative services.
The Company may consider hiring some of these consultants as full-time employees
if the Company believes that is in its interest. Additionally, should the demand
for the Company's products or contract services increase significantly, the
Company anticipates the need to hire additional employees in the areas of
equipment operation for the performance of contract services, equipment
maintenance, field support and component and spare parts manufacturing.

The Company will seek additional equity capital from private offerings. There is
no assurance, that the Company will be able to raise such additional capital
during the next 12 months. If the Company is unable to obtain the necessary
additional capital, it may be required to change the proposed business plan and
decrease the planned operations, which could have a material adverse effect upon
the business, financial condition, or results of operations.

In the event that the Company is unable to obtain the requisite funds to
continue its operations as planned, it will be necessary for the Company to
curtail its expenditures and refocus its business plan with a view toward
containing costs and obtaining additional revenues. Specific actions to this end
might include a reduction in staff, research and development and marketing
expenditures. There can be no assurance, however, that such cost reductions will
be achieved.

GOING CONCERN QUALIFICATION

The Company's auditors stated in their reports that the financial statements of
the Company for the years ended December 31, 1999 and December 31, 1998 were
prepared on the going-concern basis. For the years ended December 31, 1999 and
1998, the Company incurred net annual losses applicable to common stock of
$4,128,153 and $738,145, respectively, had a working capital deficit of $377,414
and surplus of $129,088 respectively, and has outstanding redeemable preferred
stock that can become mandatorily redeemable during 2002. These factors raise
substantial doubt about the ability of the Company to continue as a going
concern. The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.

Management has established plans intended to increase the sales of the Company's
products. Management intends to seek new capital from new equity securities and
loans to provide funds needed to increase liquidity, fund growth and implement
its business plan; however, no assurance can be given that the Company will be
able to raise any additional capital. If the Company is unable to obtain needed
sources of funds or effect sufficient cost reductions, the

                                       27
<PAGE>

Company's liquidity would be materially adversely affected and it is unlikely
that the Company would continue as a going concern (See Note 1 to the financial
statements).

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

As of August 15, 1999, the Company was not a party to any pending litigation.

ITEM 2.  CHANGES IN SECURITIES.

There has been no change in the rights, preferences or privileges of any
security of the Company during the three months ended June 30, 1999. During the
three months ended June 30, 1999, the Company issued 38 shares of Series A
Redeemable Convertible Cumulative Preferred Stock for net proceeds of $950,000
through a private placement pursuant to Rule 506 of Regulation D as promulgated
under the 1933 Act. The shares are redeemable at the option of the Company at
$27,500 per share plus accrued dividends and are redeemable at the option of the
holder any time after June 2002 at the $25,000 per share plus accrued dividends.
Each share of Series A Redeemable Convertible Cumulative Preferred Stock is
convertible into 6,000 shares of Common Stock at the holder's option. Also
during the three months ended June 30, 1999, two holders of a total of 4 shares
of Series A Redeemable Convertible Cumulative Preferred Stock exercised their
conversion rights and were issued 24,000 shares of Common Stock.

In April 1999, the Company issued 41,000 restricted, unregistered shares of
Common Stock valued at $170,970 to a shareholder and member of the Company's
Board of Directors for consulting services.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

There was no default on any senior security during the three months ended June
30, 1999.

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

There were no matters submitted to a vote of security holders during the three
months ended June 30, 1999.


                                       28
<PAGE>


ITEM 5.  OTHER INFORMATION.

On June 30, 1999, the following individuals resigned from the Company's Board of
Directors: John Caperton, Michael Cristoforo, Robert Erato, Roseann Falsetti,
Kevin Grady, Matthew Jones, Jacqueline McGuire, and Vincent Zanfini.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

(a)      EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT                                                                                     PRIOR FILING OR
NUMBER                                   DESCRIPTION                                      SEQUENTIAL PAGE NO.
------                                   -----------                                      -------------------

<S>                   <C>                                                   <C>
3.1                  Articles of Incorporation, as amended                  Incorporated by reference to Exhibit 2.1 to the
                                                                            Company's Registration Statement on Form 10-SB
                                                                            (the "Form 10-SB").

3.2                  Bylaws                                                 Incorporated by reference to Exhibit 2.2 to the
                                                                            Form 10-SB.

4.1                  Certificate of Designation for the Series A            Incorporated by reference to Exhibit 3.1 to the
                     Preferred Stock                                        Form 10-SB.

10.19                Consulting Agreements (4)                              Incorporated by reference to Exhibit 2.3 to the
                                                                            Form 10-SB.

10.20                Option to Purchase Assets and License Agreement        Incorporated by reference to Exhibit 2.6 to the
                                                                            Form 10-SB.

</TABLE>

(B) REPORTS ON FORM 8-K. No reports were filed on Form 8-K during the three
months ended June 30, 1999.


                                       29
<PAGE>

                                   SIGNATURES

         In accordance with the requirements of the Securities and Exchange Act
of 1934, as amended, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.


                                      ULTRASTRIP SYSTEMS, INC.

     November 27, 2002                /s/ Robert O. Baratta
                                      ---------------------
                                      Robert O. Baratta
                                      President, Chief Executive Officer
                                      and Vice Chairman of the Board


     November 27, 2002                /s/ Scott R. Baratta
                                      ---------------------
                                      Scott R. Baratta
                                      Senior Vice President - Finance
                                      (Chief Financial and Accounting Officer)

                                       30
<PAGE>

                                  CERTIFICATION

In connection with the Quarterly Report of UltraStrip Systems, Inc. (the
"Company") on Form 10-QSB for the period ending June 30, 1999, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
to his knowledge that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.



/s/ Robert O. Baratta
------------------------------------------------
President and Chief Executive Officer


/s/ Scott R. Baratta
------------------------------------------------
Senior Vice President - Finance (Chief Financial Officer)


                                       31
<PAGE>

                                 CERTIFICATIONS

I, Robert O. Baratta, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of UltraStrip Systems,
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 small business
issuer as of, and for, the periods presented in this report.


Date:  November 27, 2002                 /s/ Robert O. Baratta
                                          -----------------------------------
                                          Robert O. Baratta
                                          President, Chief Executive Officer
                                          and Vice Chairman of the Board



                                       32
<PAGE>

                                 CERTIFICATIONS

I, Scott R. Baratta, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of UltraStrip Systems,
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 small business
issuer as of, and for, the periods presented in this report.


Date:  November 27, 2002                  /s/ Scott R. Baratta
                                           -----------------------------------
                                           Scott R. Baratta
                                           Senior Vice President - Finance
                                           (Chief Financial Officer)


                                       33