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 SEPTEMBER 30, 2000



[ ]      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: 40,198,589 shares of common stock
were outstanding as of September 30, 2000.

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


Note: The information contained in this Form 10-QSB relates only to the covered
period. 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 September 30, 2000.


<PAGE>


                            ULTRASTRIP SYSTEMS, INC.

                                   FORM 10-QSB


                                TABLE OF CONTENTS
                                -----------------
<TABLE>
<CAPTION>


                                                                                      Page
                                                                                      ----
<S>                 <C>                                                                <C>
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...................................................        19

PART II.            OTHER INFORMATION

      Item 1.       Legal Proceedings...........................................        24
      Item 2.       Changes in Securities.......................................        24
      Item 3.       Defaults Upon Senior Securities.............................        25
      Item 4.       Submission of Matters to a Vote of Security Holders.........        25
      Item 5.       Other Information...........................................        25
      Item 6.       Exhibits and Reports on Form 8-K............................        26

                    Signatures..................................................        27

                    Certifications..............................................        28
</TABLE>

                                       ii

<PAGE>


                         PART I - FINANCIAL INFORMATION


ITEM 1.    FINANCIAL STATEMENTS.

                            ULTRASTRIP SYSTEMS, INC.
                        UNAUDITED CONDENSED BALANCE SHEET

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------
September 30,                                                                                                 2000
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                                      <C>
CURRENT ASSETS
   Cash                                                                                                  $    384,126
   Prepaid expenses and other                                                                                  87,185
---------------------------------------------------------------------------------------------------------------------

TOTAL CURRENT ASSETS                                                                                          471,311

PROPERTY AND EQUIPMENT, NET (Note 2)                                                                        3,226,374

PATENT, NET                                                                                                    90,816
OTHER ASSETS                                                                                                    4,066
---------------------------------------------------------------------------------------------------------------------

                                                                                                         $  3,792,567
=====================================================================================================================

LIABILITIES, REDEEMABLE CONVERTIBLE CUMULATIVE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
   Accounts payable and accrued expenses                                                                 $    296,700
   Accrued preferred stock dividends (Note 6)                                                                 249,999
   Notes payable - current portion (Note 4)                                                                     5,061
---------------------------------------------------------------------------------------------------------------------

TOTAL CURRENT LIABILITIES                                                                                     551,760

LONG-TERM DEBT:
   Notes payable to shareholders (Notes 3 and 4)                                                              785,447
   Notes payable, less current portion (Note 4)                                                                85,317
---------------------------------------------------------------------------------------------------------------------

TOTAL LIABILITIES                                                                                           1,422,524

REDEEMABLE CONVERTIBLE CUMULATIVE PREFERRED STOCK SERIES A
   34 shares outstanding, $25,000 per share redemption amount (Note 6)                                        850,000

REDEEMABLE CONVERTIBLE CUMULATIVE PREFERRED STOCK SERIES B
   742 shares outstanding, $2,500 per share redemption amount (Note 6)                                      1,855,000

COMMITMENTS AND CONTINGENCIES (Notes 1 and 10)

STOCKHOLDERS' DEFICIT (Notes 5, 6 and 7)

COMMON STOCK, $0.01 par value; 100,000,000 shares authorized; 40,198,589 shares issued and outstanding        401,986
ADDITIONAL PAID-IN CAPITAL                                                                                 13,620,747
ADDITIONAL PAID-IN CAPITAL UNISSUED SUBSCRIBED SHARES                                                          75,000
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE                                                          (14,432,690)
---------------------------------------------------------------------------------------------------------------------

TOTAL STOCKHOLDERS' DEFICIT                                                                                  (334,957)
---------------------------------------------------------------------------------------------------------------------

                                                                                                         $  3,792,567
=====================================================================================================================
</TABLE>



                                       1
<PAGE>


                            ULTRASTRIP SYSTEMS, INC.
                  UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                                                          From
                                                           For the three  For the three  For the nine   For the nine   Apr. 2, 1998
                                                           months ended   months ended   months ended   months ended    (inception)
                                                           Sep. 30, 2000  Sep. 30, 1999  Sep. 30, 2000  Sep. 30, 1999  Sep. 30, 2000
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>            <C>            <C>            <C>            <C>
DEVELOPMENT STAGE EXPENSES:
     Selling, general and administrative, excluding non-cash
         compensation (benefit) expense                    $  1,042,465   $    294,317   $  2,234,610   $    732,408   $  3,762,498
     Loss from impairment of assets                             214,134             --        214,134             --        214,134
     Non-cash compensation expense  (Notes 5 and 7)           3,716,973      1,880,222      6,987,409      2,449,248     10,187,937
-----------------------------------------------------------------------------------------------------------------------------------

Total development stage expenses                              4,973,572      2,174,539      9,436,153      3,181,656     14,164,569
-----------------------------------------------------------------------------------------------------------------------------------

Loss from operations                                         (4,973,572)    (2,174,539)    (9,436,153)    (3,181,656)   (14,164,569)

Other expense:
     Interest expense                                             5,545          3,130         11,874          3,130         18,122
-----------------------------------------------------------------------------------------------------------------------------------

Net loss                                                     (4,979,117)    (2,177,669)    (9,448,027)    (3,184,786)   (14,182,691)

Preferred stock dividends (Note 6)                              (45,540)       (53,886)      (118,366)       (81,425)      (249,999)
-----------------------------------------------------------------------------------------------------------------------------------

Net loss applicable to common stock                        $ (5,024,657)  $ (2,231,555)  $ (9,566,393)  $ (3,266,211)  $(14,432,690)
===================================================================================================================================

Net loss per common share (basic and diluted)              $      (0.13)  $      (0.06)  $      (0.24)  $      (0.09)
===================================================================================================================================

Weighted average number of common shares outstanding         40,145,423     37,250,068     39,742,788     37,062,276
===================================================================================================================================
</TABLE>


                                       2
<PAGE>


                            ULTRASTRIP SYSTEMS, INC.
             UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS (NOTE 11)
<TABLE>
<CAPTION>
                                                                                                                     From
                                                                            For the nine       For the nine       Apr. 2, 1998
                                                                            months ended       months ended       (inception)
                                                                            Sep. 30, 2000      Sep. 30, 1999     Sep. 30, 2000
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>               <C>               <C>
OPERATING ACTIVITIES:
   Net loss                                                                  $ (9,448,027)     $ (3,184,786)     $(14,182,691)

   Adjustments to reconcile net loss to
     net cash used in operating activities:
       Accumulated depreciation and amortization                                  389,293             5,552           397,619
       Common stock issued for services                                           800,000           170,970         1,053,612
       Issuance of equity instruments for services                              2,155,423           184,040         3,008,101
       Non-cash compensation expense                                            4,031,986         2,094,238         6,126,224
       Provision for impairment of equipment                                      214,134                --           214,134
   Change in assets and liabilities:
         Escrow receivable                                                             --           116,184                --
         Prepaid expenses and other                                               (74,282)          (49,566)          (87,185)
         Other assets                                                                  --                --            (4,066)
         Accounts payable and accrued expenses                                    (17,706)          279,851           296,704
-----------------------------------------------------------------------------------------------------------------------------

Net cash used in operating activities                                          (1,949,179)         (383,517)       (3,177,548)
-----------------------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES:
   Patent                                                                              --                --           (61,500)
   Purchase of property and equipment                                          (1,694,887)       (1,695,987)       (3,833,838)
-----------------------------------------------------------------------------------------------------------------------------

Net cash used in investing activities                                          (1,694,887)       (1,695,987)       (3,895,338)
-----------------------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES:
   Proceeds from issuance of long-term debt                                            --            96,120            96,120
   Repayment of long-term debt                                                     (3,904)             (879)           (5,741)
   Proceeds from issuance of long-term debt and warrants to shareholders          351,111           149,962           966,885
   Repayment of long-term debt and warrants to shareholders                      (181,438)           (9,500)         (181,438)
   Proceeds from issuance of series A preferred stock                                  --          1,550,00         1,550,000
   Proceeds from issuance of series B preferred stock                           1,975,000                --         1,975,000
   Proceeds from additional paid in capital unissued shares                            --            75,000            75,000
   Proceeds from issuance of common stock                                       1,827,453           184,464         2,981,186
-----------------------------------------------------------------------------------------------------------------------------

Net cash provided by financing activities                                       3,968,222         2,045,167         7,457,012
-----------------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                              324,156           (34,337)          384,126

Cash and equivalents, beginning of year                                            59,970            24,384                 0
-----------------------------------------------------------------------------------------------------------------------------

Cash and equivalents, end of period                                          $    384,126      $     (9,953)     $    384,126
=============================================================================================================================
</TABLE>

                                       3
<PAGE>



                            ULTRASTRIP SYSTEMS, INC.
                   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


BASIS OF PRESENTATION      The accompanying unaudited condensed financial
                           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 the financial statements
                           and accompanying notes included in the Ultrastrip
                           Systems, Inc. (the "Company") Annual Report on Form
                           10-KSB for the fiscal year ended December 31, 1999.

NATURE OF OPERATIONS       UltraStrip Systems, Inc. (the "Company") was
                           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 INSTRUMENTS      assets, including cash and cash equivalents and of
                           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.

                                       4
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


                           Based upon the conversion terms of the Company's
                           Series A and Series B Redeemable Convertible
                           Cumulative Preferred Stock (Preferred 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 $4,306,710.

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 AND EQUIPMENT     Property and equipment is stated at cost, maintenance
                           and repairs are charged to operations. Property and
                           equipment consists principally of robotic
                           hydro-blasting machinery and equipment. Depreciation
                           and amortization is computed using the straight-line
                           method based on the estimated useful lives of the
                           related assets of 5 to 7 years. Leasehold
                           improvements are amortized over the lesser of the
                           lease term or the useful life of the property.

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.

PATENTS                    The patents are stated at cost and are being
                           amortized on a straight-line basis over the estimated
                           future periods to be benefited (16.5 years).

ADVERTISING                The Company conducts advertising for the promotion of
                           its products. Advertising costs are charged to
                           operations when incurred; such amounts aggregated
                           $137,852 for the nine months ended September 30, 2000
                           and $81,781 for the nine months ended September 30,
                           1999.

                                       5
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


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
                           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 $14.4 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
                                  September 30,                                          Life           2000
                                  ---------------------------------------------------------------------------------
<S>                                                                                      <C>      <C>
                                  Machinery and equipment                                5 years  $   2,379,959
                                  Spare parts                                            5 years        615,519
                                  Furniture and fixtures                                 7 years        229,066
                                  Automobile and trucks                                  5 years        168,731
                                  Leasehold improvements                                 5 years         62,338
                                  Office equipment                                       5 years         64,088
                                  ---------------------------------------------------------------------------------
                                                                                                      3,619,701
                                  Less accumulated depreciation and
                                           amortization                                                (393,327)
                                  ---------------------------------------------------------------------------------
                                                                                                  $   3,226,374
                                  =================================================================================
</TABLE>

                                       7
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


                           During the nine months ended September 30, 2000 a new
                           version of the robotic system was built and the
                           system previously constructed was scrapped for spare
                           parts and written off as an impairment charge. The
                           net book value of these assets included in the loss
                           from the impairment of fixed assets was $214,134.

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

                                  September 30,                                                            2000
                                  ---------------------------------------------------------------------------------
<S>                               <C>                                                                <C>
                                  Unsecured notes payable to
                                  employee/shareholder, noninterest
                                  bearing, due upon demand                                           $    785,447
                                  ---------------------------------------------------------------------------------
                                                                                                          785,447

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

                                                                                                     $    785,447
                                  =================================================================================

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

4.      NOTES PAYABLE      Notes payable consist of the following:
<TABLE>
<CAPTION>

                                  September 30,                                                           2000
                                  ---------------------------------------------------------------------------------
<S>                               <C>                                                                <C>
                                  Installment notes payable to banks, payable $1,336 monthly
                                  including interest at 10.99%, through July 2009 collateralized
                                  by trucks                                                          $     90,378
                                  ---------------------------------------------------------------------------------
                                                                                                           90,378

                                  Less current portion                                                     (5,061)
                                  ---------------------------------------------------------------------------------

                                                                                                     $     85,317
                                  =================================================================================
</TABLE>

                           Aggregate notes payable at September 30, 2000
                           consists of the following:
<TABLE>
<CAPTION>


                                  --------------------------------------------------------------------------------
<S>                               <C>                                                                <C>
                                  Notes payable shareholders                                         $    785,447
                                  Notes payable                                                      $     90,378
                                  --------------------------------------------------------------------------------

                                                                                                     $    875,825
                                  ================================================================================
</TABLE>


                                       8
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


5.      COMMON STOCK       During the year ended December 31, 1999 the Company
                           issued to a shareholder and member of the Company's
                           Board of Directors 164,000 shares of restricted,
                           unregistered common stock in exchange for consulting
                           services. The issuances were valued at estimated fair
                           value of $1.04 per share. In connection therewith,
                           the Company recorded a charge to operations in the
                           amount of $170,970 during 1999.

                           During 1999, the Company issued 165,896 shares of
                           restricted, unregistered common stock for net
                           proceeds of $300,714. The Company also received
                           subscriptions for an additional 40,000 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.

                           In May 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.

                           During the nine months ended September 30, 2000, the
                           Company issued 858,633 shares of restricted,
                           unregistered common stock for net proceeds of
                           $1,827,453.

                           Purchase of patent
                           ------------------

                           The Company acquired from Amclean, Inc. (a related
                           corporation) the Patent for the robotic hydrostripper
                           for 1,000,000 shares of restricted common stock and
                           cash of $61,500. The Company's common stock was
                           selling at a price of $2 per share to private
                           investors at the date of the sale. According to SAB
                           48, since the owners of Amclean, Inc. retained a
                           substantial indirect interest in the patent though
                           their ownership of shares of Ultrastrip Systems,
                           Inc., the Company recorded the value of the patent as
                           $95,109, which is the historical cost basis of the
                           patent as recorded by Amclean, Inc. rather than the
                           fair market value of the assets given.

                           Shares reserved for issuance
                           ----------------------------

                           At September 30, 2000, 13,429,370 shares of Common
                           Stock were reserved for issuance under the Company's
                           fixed stock option planS, outstanding non-plan
                           options, warrants and upon conversion of the
                           outstanding Series A Redeemable Convertible
                           Cumulative Preferred Stock and Series B Redeemable
                           Convertible Cumulative Preferred Stock.


                                       9
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


                           The following reconciles the components of the loss
                           per share computation:
<TABLE>
<CAPTION>

                                  For the nine months ended  September 30,         2000                             1999
                                  ----------------------------------------------------------------------------------------------

                                                                 Income       Shares     Per-      Income     Shares     Per-
                                                                 (Nume-      (Deno-      Share    (Nume-     (Deno-      Share
                                                                  rator)      minator)   Amount    rator)     minator)   Amount
                                  ----------------------------------------------------------------------------------------------
<S>                                                           <C>            <C>        <C>     <C>          <C>         <C>
                                  Loss per common share
                                    Net (loss) available to
                                    to common  shareholders   $ (9,566,393)  39,742,788 $(0.24) $(3,266,211) 37,062,276  $(0.09)

                                  Effect of Dilutive
                                    Securities:
                                        Stock
                                        options/warrants                --           --     --          --          --      --
                                  ----------------------------------------------------------------------------------------------
                                  Net (loss) available
                                    to  common shareholders
                                    plus assumed  conversions  $(9,566,393)  39,742,788 $(0.24) $(3,266,211) 37,062,276  $(0.09)
                                  ==============================================================================================
</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 13,429,370 and 2,490,450 shares of common
                           stock at September 30, 2000 and 1999, respectively)
                           are not included in the computation of loss per share
                           because the effects of inclusion would be
                           anti-dilutive.

6.      REDEEMABLE         Series A
        CONVERTIBLE        ---------
        CUMULATIVE         During the year ended December 31, 1999, the Company
        PREFERRED          issued 62 shares of Series A Redeemable Convertible
        STOCK              Cumulative Preferred Stock at $25,000 per share for
                           net proceeds of $1,550,000. 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.

                                       10
<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 September 30, 2000 were $236,650.

                           Each share of Series A Redeemable Convertible
                           Cumulative Preferred Stock is convertible into 24,000
                           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 nine months ended
                           September 30, 2000 and 1999, 15 and 5 shares of
                           Series A preferred stock were converted into 360,000
                           and 120,000 shares of common stock respectively. 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.

                           Series B
                           --------

                           During the nine months ended September 30, 2000, the
                           Company issued 790 shares of Series B Redeemable
                           Convertible Cumulative Preferred Stock at $2,500 per
                           share for net proceeds of $1,975,000. 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. Dividends in arrears at September 30,
                           2000 were $13,349.

                           Each share of Series B preferred is convertible into
                           835 shares of common stock at the holder's option.
                           The Series B preferred shall automatically be
                           converted into common stock in the event of an
                           underwritten public offering. During the nine months
                           ended September 30, 2000, 48 shares of Series B
                           preferred stock were converted into 40,080 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.

                                       11
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


7.      STOCK OPTIONS      At September 30, 2000, the Company has two fixed
        AND WARRANTS       stock option plans and non-plan options which are
                           described below. The Company applies Accounting
                           Principles Board ("APB") Opinion 25, Accounting for
                           Stock Issued to Employees," and related
                           interpretations in accounting for employee stock
                           options. Under APB Opinion 25, in situations
                           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.

                           On August 15, 1999, the Company adopted an Outside
                           Directors Stock Option Plan, which provides for the
                           granting of 2,000,000 stock options 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 200,000 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
                           September 30, 2000, options to purchase 1,850,000
                           shares of common stock at prices from $1.88 to $3.00
                           per share have been granted pursuant to the plan.

                           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 September 30, 2000, options to
                           purchase 0 shares of common stock have been granted
                           pursuant to the plan.

                           During the nine months ended September 30, 2000 and
                           the periods ended December 31, 1999 and 1998, the
                           Company granted options to employees and directors to
                           acquire an aggregate 4,460,000 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


                                       12
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

                                   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
                                   statement date, $4,031,986 and $2,094,238 for
                                   the nine months ended September 30, 2000 and
                                   1999, respectively.

                                   During the nine months ended September 30,
                                   2000 and 1999, the Company granted options
                                   and warrants to acquire 1,650,000 and
                                   400,000, 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 $1.88 to $3.00 per share, substantially
                                   were fully vested at the date of grant and
                                   expire through 2005. 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 recorded expenses
                                   for the services rendered of $2,155,423 in
                                   2000 and $184,040 in 1999.

                                   A summary of the status of the Company's
                                   fixed stock option plans and non-plan options
                                   and warrants as of September 30, 2000 and
                                   changes during the period 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   $ 1.88    1,000,000   $  0.89        7,993,800
                                  Granted                              3.00      850,000      2.02        2,150,000
                                  Exercised                              --           --        --               --
                                  Forfeited                              --           --        --               --
                                  -------------------------------------------------------------------------------------

                                  Outstanding at September 30, 2000  $ 2.39    1,850,000      1.13       10,143,800

                                  Exercisable at September 30, 2000  $ 1.88    1,000,000      1.13       10,143,800
                                  =====================================================================================

                                  Weighted average fair value
                                    of options granted during
                                    the period                       $ 1.56                $  1.25
                                  =====================================================================================
</TABLE>

                           A summary of the status of the Company's fixed stock
                           option plans and non-plan options

                                       13
<PAGE>


                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS

                           and warrants as of September 30, 1999 and changes
                           during the period 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   $   --           --   $  0.63        4,013,800
                                  Granted                              1.88    1,000,000      1.15        3,580,000
                                  Exercised                              --           --        --               --
                                  Forfeited                              --           --        --               --
                                  -------------------------------------------------------------------------------------

                                  Outstanding at September 30, 1999  $ 1.88    1,000,000      0.89        7,593,800

                                  Exercisable at September 30, 1999  $   --           --      0.89        7,593,800
                                  =====================================================================================

                                  Weighted average fair value
                                    of options granted during
                                    the period                       $ 0.83                $  0.56
                                  =====================================================================================
</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
                           $1,806,902 and $1,262,011 for the nine months ended
                           September 30, 2000 and 1999, 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 decreased to
                           the pro forma amounts indicated below:
<TABLE>
<CAPTION>

                                 Nine  months ended September 30,                             2000          1999
                                 ----------------------------------------------------------------------------------
<S>                                                                                  <C>               <C>
                                 Net (loss) applicable to common stock as reported   $    (9,566,393)  $ (3,266,211)
                                 Net (loss) applicable to common stock pro forma         (11,373,295)    (4,528,222)
                                 Basic (loss) per share as reported                            (0.24)         (0.09)
                                 Basic (loss) per share pro forma                              (0.29)         (0.12)
</TABLE>

                                       14
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


                           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>
<CAPTION>
                                                                                             2000         1999
                                 ----------------------------------------------------------------------------------
<S>                                                                                           <C>          <C>
                                 Risk free interest rate                                      5.96 %       5.80 %
                                 Expected life                                           3-5 years      3 years
                                 Expected volatility                                            74 %         59 %
                                 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, 1999, the Company had
                           federal net operating losses (NOL) of approximately
                           $1,080,722. The NOL expires in the years 2018 through
                           2019. 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 $
                           5,057,059 deferred federal tax asset at September 30,
                           2000 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>
                                  Nine months ended Sept. 30,                          2000                1999
                                  --------------------------------------------------------------------------------
<S>                                                                             <C>                   <C>
                                  Tax benefit at the United States
                                    statutory rate                              $   3,252,574         $ 1,108,624
                                  State income tax benefit, net                       162,629              55,431
                                  Valuation allowance adjustment
                                                                                   (3,415,202)         (1,164,055)
                                  --------------------------------------------------------------------------------
                                  Income tax benefit                            $          --         $        --
                                  ================================================================================
</TABLE>


                                       15
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


                           Significant components of the Company's deferred tax
                           assets and liabilities are as follows:
<TABLE>
<CAPTION>
                                  September 30,                                            2000              1999
                                  ----------------------------------------------------------------------------------
<S>                                                                               <C>                <C>
                                  Deferred tax assets:
                                      Organizational costs                        $     123,121      $    156,100
                                      Net operating loss
                                      carryforwards                                   1,742,039           351,480
                                      Compensation related to equity
                                      instruments issued for
                                      services                                        3,191,899           919,994
                                  ----------------------------------------------------------------------------------
                                  Valuation allowance for deferred
                                      tax assets                                     (5,057,059)       (1,427,574)
                                  ----------------------------------------------------------------------------------

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

9.      RELATED PARTY      Development Agreement
        TRANSACTIONS       ---------------------
                           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 is based on funds
                           provided by the Company.

                           License Agreement
                           -----------------
                           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
                           hydroblasting services in the ship cleaning industry.
                           For the nine months ended September 30, 2000, royalty
                           expenses were $0.

                           Management Agreement
                           --------------------

                           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

                                       16
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


                           heavy marine industry. For the nine months ended
                           September 30, 2000, fees paid to Wallem were $0. The
                           managing director of Wallem is a director of the
                           Company.

10.     COMMITMENT AND     The Company currently maintains office facilities in
        CONTINGENCIES      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 September 30, 2000, accounts
                           payable and accrued expenses include $195,761 of
                           accrued compensation.

                           The Company conducts its operations from leased
                           facilities, under an operating lease expiring July
                           2005, with a guaranteed option to renew for an
                           additional five year term at the Company's option for
                           annual increases of 3.25%.

                           Lease rent expense for the nine months ended
                           September 30, 2000 and 1999 amounted to $20,780 and
                           $6,248 including Florida rental use tax of 6.5%.


                                       17
<PAGE>

                            ULTRASTRIP SYSTEMS, INC.
                          NOTES TO FINANCIAL STATEMENTS


11.     SUPPLEMENTAL CASH  Supplemental disclosure is as follows:
        FLOW INFORMATION
<TABLE>
<CAPTION>

                                  September 30,                                        2000              1999
                                  ----------------------------------------------------------------------------------
<S>                                                                             <C>               <C>
                                  Cash paid for interest                        $        11,874   $         3,130
                                  Cash paid for taxes                                        --                --

                                  Non-cash investing and financing activities:

                                  Conversion of preferred stock to
                                      common stock                              $       495,000   $       125,000

                                  Accrued preferred stock dividends             $       118,366   $        81,425
</TABLE>

12.     RESEARCH AND       Research and development cost relates to both future
        DEVELOPMENT        and present products and are charged to operations as
                           incurred. The Company recognized research and
                           development costs of $199,982 and $0 for the nine
                           months ended September 30, 2000 and 1999,
                           respectively.

                                       18
<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 Company purchased the first patent, U.S. Patent No.
5,628,271, in December 1999 from AmClean, Inc. The second patent, U.S. Patent
No. 5,849,099, was assigned to the Company in May 2000.

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 $14,432,690. The Company generated
$7,457,012 from financing activities during this period to help fund the
shortfall in working capital.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999

During the three months ended September 30, 2000, 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 nine months
of 2000 related to research and development.

                                       19
<PAGE>

The Company did not generate any revenues during the three months ended
September 30, 2000. Revenues were $0 for both the three months ended September
30, 2000 and the three months ended September 30, 1999.

Development stage expenses increased from $2,174,539 for the three months ended
September 30, 1999 to $4,973,572 for the three months ended September 30, 2000.
The primary components of development stage expenses were selling, general and
administrative expenses, loss from impairment of assets and non-cash
compensation expenses.

Selling, general and administrative expenses, excluding non-cash compensation,
increased from $294,317 for the three months ended September 30, 1999 to
$1,042,465 for the three months ended September 30, 2000. This increase is due
to an expansion of the Company's operating activities through the hiring of new
employees, consulting projects, legal expenses, research and development, as
well as advertising, depreciation and travel expenses.

Loss from impairment of assets increased from $0 for the three months ended
September 30, 1999 to $214, 134 for the three months ended September 30, 2000 as
a result of building a new version of the Company's automated hydro-blasting
system and scrapping the system previously constructed for spare parts.

Non-cash compensation expenses increased from $1,880,222 for the three months
ended September 30, 1999 to $3,716,973 for the three months ended September 30,
2000. This increase is attributable to charges of $78,235 for the issuance of
stock options and warrants to a member of the Company's Board of Advisors and
variable accounting charges of $3,638,738 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 $3.00 per share.

Loss from operations for the three months ended September 30, 2000 was
$4,973,572 as compared to $2,174,539 for the three months ended September 30,
1999. Preferred Stock dividends were $45,540 for the three months ended
September 30, 2000 and $53,886 for the three months ended September 30, 1999.
Net loss applicable to Common Stock was $5,024,657 for the three months ended
September 30, 2000, compared to $2,231,555 for the three months ended September
30, 1999. Loss per common share was $0.13 for the three months ended September
30, 2000 and $0.06 for the three months ended September 30, 1999.

NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999

The Company did not generate any revenues during the nine months ended September
30, 2000. Revenues were $0 for both the nine months ended September 30, 2000 and
the nine months ended September 30, 1999.

                                       20
<PAGE>

Development stage expenses increased from $3,181,656 for the nine months ended
September 30, 1999 to $9,436,153 for the nine months ended September 30, 2000.
The primary components of development stage expenses were selling, general and
administrative expenses, loss from impairment of assets and non-cash
compensation expenses. Selling, general and administrative expenses, excluding
non-cash compensation, increased from $732,408 for the nine months ended
September 30, 1999 to $2,234,610 for the nine months ended September 30, 2000.
Loss from impairment of assets increased from $0 for the nine months ended
Septmeber 20, 1999 to $214,134 for the nine months ended September 30, 2000.
Non-cash compensation expenses increased from $2,449,248 for the nine months
ended September 30, 1999 to $6,987,409 for the nine months ended September 30,
2000.

Loss from operations for the nine months ended September 30, 2000 was $9,436,153
as compared to $3,181,656 for nine months ended September 30, 1999. Preferred
Stock dividends were $118,366 for the nine months ended September 30, 2000 and
$81,425 for the nine months ended September 30, 1999. Net loss applicable to
Common Stock was $9,566,393 for the nine months ended September 30, 2000,
compared to $3,266,211 for the nine months ended September 30, 1999. Loss per
common share was $0.24 for the nine months ended September 30, 2000 and $0.09
for the nine months ended September 30, 1999.

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 September 30, 2000, the Company's cash and cash equivalents on hand were
$384,126, compared to $59,970 as of December 31, 1999. This increase was
primarily due to the sale of restricted, unregistered shares of Common 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 $1,949,179 for the nine months ended
September 30, 2000, compared to $383,517 for the nine months ended September 30,
1999. This increase resulted from increases in the Company's net loss. Net cash
used in operating activities during the first nine months of 2000 does not
include non-cash charges of $389,293 for depreciation and amortization, $214,134
from loss on impairment of assets and $6,987,409 for non-cash compensation to
employees, directors and service providers.

The Company's net cash used in investing activities decreased slightly from
$1,695,987 in the nine months ended September 30, 1999 to $1,694,887 in the nine
months ended September 30, 2000, primarily as a result of a decrease in new
machinery and equipment purchases.

                                       21
<PAGE>

During the nine months ended September 30, 2000, the Company repaid long-term
debt from significant shareholders in the amount of $181,438. The Company also
incurred new long-term debt from significant shareholders in the amount of
$351,111. These loans payable by the Company to certain of its shareholders are
unsecured, non-interest bearing, and due upon demand. During the period through
March 31, 2000, the Company issued 511,300 shares of Common Stock for net
proceeds of $1,022,600 through a private placement pursuant to Rule 506 of
Regulation D as promulgated under the 1933 Act. During the nine months ended
September 30, 2000, the Company also issued 347,333 shares of Common Stock for
net proceeds of $804,853 in transactions exempt under Section 4(2) of the
Securities Act of 1933. During the three months ended September 30, 2000, the
Company issued 790 shares of Series B Redeemable Convertible Cumulative
Preferred Stock for net proceeds of $1,975,000 through a private placement
pursuant to Rule 506 of Regulation D as promulgated under the 1933 Act. The
Company's net cash provided by financing activities rose to $3,968,222 for the
nine months ended September 30, 2000 from $2,045,167 for the nine months ended
September 30, 1999.

The Company lacks assured available financial resources to meet its September
30, 2000 working capital deficit of $80,449 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 $5.5 million, within the next twelve months. The Company estimates
that of that amount (i) $0.65 million will be for research and development, (ii)
$0.35 million for sales and marketing forces, (iii) $0.8 million for
professional fees, (iv) $3.0 million for other operating expenses, such as
payroll, rent and office expense, and (v) $0.75 million for investment in
property and equipment.

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. Through
September 30, 2000, the Company has incurred research and development costs of
$199,982 with the NREC.

                                       22
<PAGE>

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 is based on funds provided by the Company.

PLAN OF OPERATIONS

As of November 15, 2000, 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 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.

                                       23
<PAGE>

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 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 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 September 30, 2000, 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 September 30, 2000. During
the three months ended September 30, 2000, the Company issued 83,333 restricted,
unregistered shares of Common Stock for net proceeds of $250,000 in a
transaction exempt under Section


                                       24
<PAGE>

4(2) of the Securities Act of 1933. During the third quarter of 2000, the
Company also issued 790 restricted, unregistered shares of Series B Redeemable
Convertible Cumulative Preferred Stock for net proceeds of $1,975,000 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 $3,000 per
share plus accrued dividends and are redeemable at the option of the holder any
time after June 2002 at the $2,500 per share plus accrued dividends. Each share
of Series B Redeemable Convertible Cumulative Preferred Stock is convertible
into 835 shares of Common Stock at the holder's option.

Also, during the three months ended September 30, 2000, one holder of one share
of Series A Redeemable Convertible Cumulative Preferred Stock and two holders of
an aggregate of 48 shares of Series B Redeemable Convertible Cumulative
Preferred Stock exercised their conversion rights and were issued 24,000 and
40,080, respectively, shares of Common Stock.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

There has been no default on any senior security during the three months ended
September 30, 2000.

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

The Company held its annual meeting of shareholders on August 18, 2000, and the
holders of a majority of the Company's common shares present in person or by
proxy at the annual meeting elected the following individuals to the Company's
Board of Directors until the next annual meeting of shareholders or until their
successors are duly elected and qualified to serve: William Owens as Chairman,
Robert Baratta as Vice Chairman, John Bares, Jean-Michel Cousteau, Frank
Esposito, Gordon Kuljian, Joseph Lopez, Dennis McGuire and John Odwazny. The
holders of a majority of the Company's common shares present in person or by
proxy at the annual meeting also adopted the 2000 Long Term Incentive Program
and directed the Company to reserve 4,000,000 shares of common stock for
issuance under the plan and ratified the appointment of Barry I. Hechtman, P.A.
to audit the financial statements of the Company for 2000.

On September 21, 2000, the shareholders of a majority of the Company's common
shares acting by written consent elected John M. Gumersell to the Company's
Board of Directors, effective immediately, to serve until the next annual
meeting of shareholders or until their successors are duly nominated, elected
and qualified to serve.

ITEM 5.  OTHER INFORMATION.

None.

                                       25
<PAGE>


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

         (a) EXHIBITS.

<TABLE>
<CAPTION>

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

4.2                  Certificate of Designation for the Series B            Incorporated by reference to Exhibit 3.2 to the
                     Preferred Stock                                        Form 10-SB.

10.8                 Development Agreement with Carnegie Mellon             Incorporated by reference to Exhibit 10.8 to
                     University Robotics Institute                          the Form 10-SB.

10.9                 Agreement for Robotic Coatings Removal with Wallem     Incorporated by reference to Exhibit 10.9 to
                     Shipmanagement Ltd.                                    the Form 10-SB.

10.12                1999 Outside Directors Stock Option Plan               Incorporated by reference to Exhibit 10.12 to
                                                                            the Form 10-SB.

10.13                2000 Long Term Incentive Program                       Incorporated by reference to Exhibit 10.13 to
                                                                            the 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 September 30, 2000.


                                       26
<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)




                                       27
<PAGE>


                                  CERTIFICATION

In connection with the Quarterly Report of UltraStrip Systems, Inc. (the
"Company") on Form 10-QSB for the period ending September 30, 2000, as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
the undersigned certify pursuant to ss. 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)


                                       28
<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


                                       29
<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)



                                       30