SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-KSB

_X_   ANNUAL REPORT UNDER SECTION 13 OR 15(d)
      OF THE SECURITIES EXCHANGE ACT OF 1934

      For the Fiscal Year Ended DECEMBER 31, 1999

___   TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF
      THE SECURITIES EXCHANGE ACT OF 1934

      For the transition period from ___________ to ___________

                         Commission File Number 0-22434

                             AQUA CARE SYSTEMS, INC.
                     --------------------------------------
                 (Name of small business issuer in its charter)

         DELAWARE                                13-3615311
-------------------------------                ----------------
(State or other jurisdiction of                (I.R.S. Employer
 incorporation or organization)               Identification No.)

                   11820 NW 37 STREET, CORAL SPRINGS, FL 33065
               --------------------------------------------------
               (Address of principal executive offices)(Zip Code)

         Issuers's telephone number: (954) 796-3338

         Securities registered under Section 12(b) of the Exchange Act: NONE

         Securities registered under Section 12(g) of the Exchange Act:

                                TITLE OF CLASSES
                                ----------------

                          Common Stock, $.001 par value

                Page 1 of 42, (including pages F-1 through F-18)
                            Index to Exhibits Page 23

<PAGE>

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

                  Yes  _X_                    No ___

         Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this Form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]

         Issuer's revenues for its most recent fiscal year: $23,356,260

         The aggregate market value of the voting stock held by non-affiliates
of the Registrant (computed by reference to the average bid and asked prices of
such stock) as of February 29, 2000 was approximately $6,342,669.

         There were 2,899,506 shares of Common Stock, $.001 par value,
outstanding at February 29, 2000.

         Transitional Small Business Disclosure Format (check one):

                  Yes       ;               No  X
                      ---                      --

         DOCUMENTS INCORPORATED BY REFERENCE: See Item 13, Exhibits and Reports
on Form 8-K, for items incorporated by reference into this Annual Report on Form
10-KSB.

                                      - 2 -
<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

GENERAL

         Aqua Care Systems, Inc., (the "Company" or "ACSI"), is a Florida-based
Delaware corporation. ACSI is engaged in the design, engineering, manufacturing,
assembly, sales, marketing, distribution and service of filtration systems and
products, flow control systems and products, water filtration and purification
products, and car wash equipment sales and service.

         The Company has implemented a strategy to focus on the critical fluid
handling and filtration needs of the process industries and believes there are
excellent opportunities for profitable growth in these markets. ACSI's ability
to successfully implement its strategy is supported by the acquisition of the
filtration systems and metering pump businesses from Durco International, Inc.
in June 1997. These businesses focus on providing added value to customers
through end user price and quality enhancement by providing specially designed
high end products to meet the technically demanding needs in their respective
markets. ACSI's plan is to substantially increase its presence in the fluid
handling and filtration markets. The Company intends to selectively invest in
internal growth and pursue additional acquisitions that may enhance its existing
competencies, market presence and overall profitability.

         In addition to the Company's focus on opportunities in the fluid
handling and filtration businesses, it continues to provide management services
to its other operating subsidiaries. The Company has organized its active,
wholly owned subsidiaries into three divisions; (a) industrial and municipal
fluid handling and filtration, (b) commercial and residential water filtration
and purification and (c) car wash equipment sales and service.

ACQUIRED SUBSIDIARIES

         Since inception, the Company acquired several businesses including
Filtration Systems Division, ("FSDA"), DuraMeter Pump Company, Inc., ("DMPC"),
and Gravity Flow Systems, Inc., ("GFSI"), in the industrial and municipal fluid
handling and filtration markets; KISS International, Inc., ("KISS"), and Di-tech
Systems, Inc., ("DTSI"), both engaged in commercial and residential water
filtration and purification businesses and Car Wash Equipment & Supply, Ryko of
South Florida, Inc., ("CWES"), involved in car wash equipment sales and service.

         The Company will continue to engage in acquisitions which may result in
a substantial change in ACSI's business operations and financial condition. As
consideration for any acquisition, in addition to the payment of cash, ACSI may
issue notes, common stock, preferred stock, or other securities. It is intended
that key employees of acquired companies generally will become employees of the
subsidiaries and, as such, will hold management positions in such subsidiaries.
ACSI does not intend to seek stockholder approval for any acquisitions unless
required by applicable laws or regulations. No such acquisitions have occurred
since 1997, and currently there are no acquisitions pending. There can be no
assurance that any acquisitions will be consummated during 2000.

                                       3
<PAGE>

DISPOSED SUBSIDIARIES

         During the fourth quarter of 1998, the Company consummated the sales of
the assets of Midwest Water Technologies, ("MWTI"), and EnviroSystems Supply,
Inc., ("ESSI"). MWTI could not generate enough profits, nor cash flow, since its
acquisition due to its increasingly competitive market pressures and lack of
distinguishing products and ESSI was inextricably linked to specific niches in
the capital equipment market which precluded it from garnering revenues and
margins acceptable to meet management's current standards. (See Note 11 of
"Notes to Consolidated Financial Statements".)

OPERATIONS

             INDUSTRIAL AND MUNICIPAL FLUID HANDLING AND FILTRATION.

         FSDA manufactures (a) filter presses, (b) pressure leaf filters and (c)
tubular filters. All three types of filters are large units used in industrial
applications. The demand for each filter is based on the solids concentration in
the fluid, level of purification required and the flow rate of the liquid used
in the process. These manufactured products, along with the technical expertise
of the employee base, allow FSDA to address the filtration and separation needs
of its customers, such as those found in food and beverage processing, chemical
manufacture, and oil and gas refining. FSDA has approximately 40 years of
experience in supplying quality systems and components to the process
industries.

         Filter presses are large, steel-framed structures with pneumatically
driven square filter plates used to separate solids from liquids that contain
high solids concentration. They are used to dewater sludge, separate chemicals
such as dyes and pigments from liquid in industrial applications and in food
processing to separate chemicals from liquids. Typically, liquid slurry is
pumped into the filter press. The liquid passes through the filter and flows to
a discharge port to be captured or disposed of. Pressure from a feed pump forces
out more liquid. The solids are compacted into a dry "cake" which is dropped
into a handling system. In manufacturing and food processing applications, the
solid material captured in dry form can be disposed of at a lower cost or
reused.

         Pressure leaf filters are large vessel type filters used for liquids
containing medium level solids concentration and for use when a high level of
clarification is desirable. Pressure leaf filters are used in chemical,
pharmaceutical and beverage applications to remove sub-micronic solids from a
liquid. Generally, a liquid is pumped into a closed vessel, which contains a
filter septum and out through a discharge pipe leaving behind the trapped
solids. As compared to filter presses, the leaf filters separate smaller
particles down to one-tenth micron removal, and they can handle high flow rates
and discharge wet or dry cakes.

         Tubular filters are much smaller than filter presses or pressure leaf
filters and allow for the highest flow rate, although with the lowest solids
concentration. Tubular filters can be used for such applications as mineral
acids clarification and for the ultra pure water needs for applications such as
semiconductor manufacturing.

                                       4
<PAGE>

         The management of FSDA believes that the market for its products is
driven by global production growth and the increasing needs for, and benefits
from, eliminating unwanted contaminants to ensure safe and/or constant quality
products. Specific factors creating new application requirements include
improved detection and monitoring levels, environmental consciousness and cost
savings to recycle certain elements. Management's goal is to seek market
opportunities where it believes it has a competitive advantage through value
added systems engineering and competence demonstrated through a large base of
successful installations. FSDA sells its products and services through regional
sales managers who work with independent representatives selling to engineering
firms and directly to end-users. FSDA intends to support its sales effort with
print advertising in trade journals, trade show attendance, direct marketing and
public relations. As a result of the systems project nature of the business,
revenues and operating income can vary significantly on a month to month basis.

         DMPC's products add a liquid or gas to another liquid or gas process in
precise and reproducible volumetric requirements. DMPC's metering pumps are
primarily used in the chemical and petro-chemical markets. This entity features
three main pump models which are available in numerous configurations. DMPC
offers one of the market's most recently designed product lines, the development
of which was supported by the financial resources of the previous owner. Based
on that design advantage, DMPC focuses on special application market segments
for solutions requiring highly engineered products. Management believes that the
growth of its market is driven by general economic growth, as well as industry
cost efficiency mandates. DMPC sells its products and services through regional
sales managers primarily to independent representatives, distributors and
original equipment manufacturers. The selling effort focuses on both engineering
firms who typically purchase large quantities of pumps as part of major systems
installations and directly to end users. DMPC has not historically relied on
marketing programs to sell its products, but intends to implement both
distributor marketing programs and selective direct marketing.

         GFSI's product line is comprised of Wedgewater(TM) filter bed systems
for sludge de-watering, lateral flow sludge thickener systems and Wedgewater(TM)
sieve systems. The patented Wedgewater(TM) filter bed system generally is
utilized by municipalities servicing populations of 30,000 or less and utilizes
one-sixth to one-tenth the space of traditional systems and requires
significantly less time to de-water sludge as compared with conventional
sand/gravel filter beds. Several other advantages to this technology include,
but are not limited to, lower operating and maintenance costs, exceptional
reliability and improved operating environments. Since inception, GFSI has sold
and installed over 350 systems through 30 domestic and international
representatives.

         COMMERCIAL AND RESIDENTIAL WATER FILTRATION AND PURIFICATION.

         The Company owns two operating subsidiaries in the residential water
filtration and purification industries. KISS, which operates in southern
California, is a manufacturer and distributor of water filtration and
purification products primarily for residential applications. It owns molds for
various major components, such as filter housings, membrane housings and control
valves. KISS distributes its products through dealers, distributors and
wholesalers throughout the United States and internationally. DTSI, located in
the same facility as KISS,

                                       5
<PAGE>

produces a line of water purification and ion exchange cartridges that it
markets under the Di-tech brand name through dealers and distributors primarily
to original equipment manufacturers.

         KISS and DTSI assemble the majority of their product lines. Their
products are installed by the Company's dealers or shipped as finished goods to
wholesalers and retailers. KISS manufactures and sells its products to dealers
who in turn re-sell the products to their customers. In some cases, KISS and
DTSI bundle their respective products into a package and sell such packages as
whole house water solutions. ACSI offers consumers financing of their purchases
from ACSI's dealers through a third party. For the years ended December 31, 1999
and 1998, the Company recognized approximately $757,000 and $852,000,
respectively, in net revenues from this financing activity. Because of the
competitive nature of these businesses, the profits from the financing
contribute a significant amount to the entities' profits. In connection with
this financing activity, the Company assumes no credit risk, but could share in
the risk associated with dealer fraud. (See Notes 10 and 13(d) of "Notes to
Consolidated Financial Statements".)

         CAR WASH EQUIPMENT SALES AND SERVICE.

         CWES is the exclusive distributor in the seven southern counties of
Florida for the sale, installation and continuing service contracts of the
equipment and supplies of Ryko Manufacturing Company, ("RYKO"), the largest
manufacturer of car wash equipment in the United States. The management of CWES
believes that it has in excess of an 80% share of its market of rollover car
washes in its territory. CWES' customers include, but are not limited to,
certain major national oil companies, independently owned and operated gasoline
distributorships and car wash companies.

SUPPLIERS

         There are several manufacturers and suppliers of the components used in
the manufacturing and assembly of the Company's products. ACSI purchases raw
materials and supplies on terms, usually net 30 days, and to a lesser extent, on
a cash on delivery basis. The Company believes that it generally is not
dependent on any one supplier for products or components utilized by the
subsidiaries. CWES, however, is dependent on a single supplier, Ryko
Manufacturing Company ("Ryko"). CWES is the exclusive distributor in South
Florida for the sale, installation and service of Ryko's rollover car wash
equipment. Such exclusive distributorship prohibits CWES from selling,
installing and/or servicing any car wash equipment from another manufacturer or
supplier. The distributor agreement provides that CWES sells directly or
receives a commission on all Ryko equipment sold within its region. The
agreement is scheduled to expire in November 2000, however, it provides for
automatic renewal upon the achievement of certain sales goals. CWES expects to
meet such goals.

INSURANCE

         The Company maintains limited product liability insurance. ACSI has not
had a successful significant product liability claim asserted against it since
inception. A substantial products liability claim, determined adverse to ACSI,
could have a material adverse effect on the Company's operations and financial
condition.

                                       6
<PAGE>

BUSINESS SEGMENT INFORMATION

         ACSI's operations consist of three business segments, other than
corporate expenses, for financial reporting purposes; (a) industrial and
municipal fluid handling and filtration, (b) commercial and residential water
filtration and purification and (c) car wash equipment sales and service. (See
Note 9 of "Notes to Consolidated Financial Statements" for a summary of selected
information for such business segments for the years ended December 31, 1999 and
1998.)

GOVERNMENTAL REGULATION

         The enactment and enforcement of Federal, state and local laws relating
to water and air quality standards may materially influence the level of sales
of some or all the Company's businesses. Some of the Company's customers utilize
ACSI's products and services in response to regulatory requirements affecting
their businesses. ACSI believes that, as a provider of such products and
services, the Federal or state environmental rules or regulations potentially
applicable to the Company's customers are not directly applicable to ACSI. While
the Company is not aware of any pending or proposed Federal legislation or
regulation that would adversely affect its products or components or limit the
methods in which those products are manufactured, installed or serviced, any
such legislation or regulation could have a material adverse impact on the
Company. Certain states have enacted legislation, which requires licensing,
testing and labeling of flow control, fluid handling, water filtration and
purification and waste water treatment products, including those offered by
ACSI.

COMPETITION

         In the filtration systems and metering pump markets, the Company's
management believes that there is a fragmented specialized approach to
satisfying customers' needs. The Company attempts to compete in market segments
characterized by demand for quality, technologically superior products and
service. However, the Company does compete against companies with substantially
greater resources, including U.S. Filter and Milton Roy.

         In the residential filtration and purification markets, the Company
believes that there are thousands of companies involved in various aspects of
water filtration and purification and that the market is highly competitive. The
Company competes with a number of significantly larger companies including
Culligan, EcoWater and Hague in the residential filtration and purification
market. Such market is served by an array of products that are either
"off-the-shelf" or custom-designed. These products range from small carbon
filtration systems to de-ionization systems, reverse osmosis systems,
de-gasifiers, scrubbers, ozone systems, ultra-violet systems and bio-remediation
systems. Many of the residential systems generally are marketed by local
operators across the country.

                                       7
<PAGE>

EMPLOYEES

         As a result of the 1997 acquisition of FSDA and DMPC, the Company
became a party to a collective bargaining agreement with the International Union
of Electronic, Electrical, Salaried, Machine and Furniture Workers, A.F.L. -
C.I.O. The Company negotiated changes to the existing agreement and, in July
1997, a collective bargaining agreement was ratified for the period covering
July 17, 1997 through July 21, 2000. Such agreement applies solely to 33
employees of FSDA and DMPC. During February 2000, the Company initiated
negotiations toward the ratification of a new collective bargaining agreement.
As of the date of this report, no such new agreement has, as of yet, been
ratified. Neither the Company nor any of its subsidiaries are subject to any
other collective bargaining agreements.

         As of February 29, 2000, ACSI and its subsidiaries had 124 full-time
employees. ACSI believes its employee relations to be satisfactory.

ITEM 2.  DESCRIPTION OF PROPERTY.

         In connection with the acquisition of FSDA and DMPC in June 1997, the
Company purchased approximately 80 acres of land and three buildings
encompassing approximately 110,000 square feet in Angola, New York. The
buildings are comprised of (a) the manufacturing and assembly facility for FSDA,
(approximately 70,000 square feet), (b) the manufacturing and assembly,
engineering and administrative facilities of DMPC, (approximately 30,000 square
feet), and (c) the administrative office building which contains divisional
management and purchasing, sales, engineering and administration for FSDA and
the administrative and sales offices of GFSI, (approximately 10,000 square
feet). The above noted properties are encumbered by a mortgage covering the land
and buildings securing a note bearing interest at prime plus 1.25%, (10% at
March 14, 2000). The note is payable, principal and interest monthly, with an
estimated balloon payment of approximately $715,000 due June 2005. The note
balance as of March 14, 2000 was $1,055,000. (See Note 5(b) of "Notes to
Consolidated Financial Statements").

         ACSI purchased land and a building in Coral Springs, Florida in July
1996. Such facility encompasses approximately 18,000 square feet of office and
warehouse area and houses ACSI's corporate offices, as well as the entire
operations and administration of CWES. The property is encumbered by a first
mortgage lien covering the land and building. The secured note bears interest at
the fixed rate of 8.5% and is payable, principal and interest monthly, through
October 2014. The mortgage balance at February 29, 2000 was $563,861.

         The Company leases a facility encompassing 17,000 square feet in Vista,
California which contains the offices, warehouse and manufacturing/assembly
facilities of KISS and DTSI. Such property is leased through July 2002 from a
non-affiliated, third party. The Company's monthly lease expense for the above
noted property approximates $10,000.

         The Company believes that its premises are adequate to permit it and
its subsidiaries to conduct their businesses as they are currently conducted for
the reasonably foreseeable future.

                                       8
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS.

         On April 9, 1997 Long Trail Brewing Company filed a complaint against
EnviroSystems Supply, Inc., a wholly owned subsidiary of the Company, in Windsor
Superior Court in the County of Windsor in the State of Vermont; Docket number
S216-5-97Wrcv. The complaint alleges, among other matters, breach of express
warranty and specific performance of certain of the parameters of the written
agreement for the purchase of a waste water treatment plant designed to treat
the industrial waste water generated at the Plaintiff's brewing facility. The
Company's insurance carrier is defending the claim under a reservation of
rights. Management believes, based on facts presently known, that if the outcome
of such legal proceedings is determined adverse to the Company, such
determination could have a material adverse effect on the Company's financial
position, liquidity, or future results of operations. The Company has reserved
for the estimated probable loss in connection with this matter.

         The Company is or may become involved in various lawsuits, claims and
proceedings in the normal course of its business including those pertaining to
product liability, environmental, safety and health, and employment matters. The
Company records liabilities when loss amounts are determined to be probable and
reasonably estimatable. Insurance recoveries are recorded only when claims for
recovery are settled. Although generally the outcome of litigation cannot be
predicted with certainty and some lawsuits, claims or proceedings may be
disposed of unfavorably to the Company, management believes, based on facts
presently known, that the outcome of such legal proceedings and claims, other
than those previously disclosed, will not have a material adverse effect on the
Company's financial position, liquidity, or future results of operations.

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

         No matter was submitted during the fourth quarter of the fiscal year
ended December 31, 1999 to a vote of security holders of the Company, through
the solicitation of proxies, or otherwise.

                                       9
<PAGE>

                                     PART II

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

         The Company's Common Stock is traded and quoted under the symbol AQCR
on The Nasdaq SmallCap Market ("Nasdaq"). The following table sets forth the
high and low bid prices for the Common Stock, as quoted on Nasdaq, for the
periods indicated, as adjusted for the Company's one for four reverse stock
split which became effective February 10, 1998. Quotations are interdealer
prices without retail markup, markdown or commission, and may not necessarily
represent actual transactions.

                                        HIGH         LOW
                                        ----         ---
             Quarter ended
               March 31, 1998          $3-5/16     $1-7/16
               June 30, 1998           $3-21/32    $2-1/2
               September 30, 1998      $2-9/16     $15/32
               December 31, 1998       $1-5/8      $19/32
               March 31, 1999          $1-3/8      $3/4
               June 30, 1999           $1-1/2      $7/8
               September 30, 1999      $1-13/16    $1-1/4
               December 31, 1999       $1-15/16    $1-3/16

             Period ended
               February 29, 2000       $3-1/8      $1-1/2

          The Company had 63 owners of record and, it believes, in excess of
1,500 beneficial owners of its Common Stock as of February 29, 2000.

DIVIDENDS

          Since its inception, the Company has not paid any cash dividends on
its Common Stock. The Company intends to retain future earnings, if any,
generated from the Company's operations to help finance the operations and
expansion of the Company and accordingly does not plan, for the reasonably
foreseeable future, to pay cash dividends to holders of the Common Stock. Any
decisions as to the future payment of dividends will depend on the earnings and
financial position of the Company and such other factors as the Company's Board
of Directors deems relevant.

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

          The following discussion and analysis should be read in conjunction
with the Company's consolidated financial statements and notes thereto appearing
elsewhere in this Annual Report on Form 10-KSB.

                                       10
<PAGE>

BUSINESS PLAN

          ACSI was formed for the purpose of pursuing acquisitions, primarily in
the non-chemical waste water treatment and water filtration and purification
industries. It has since expanded its pursuit of acquisitions to include the
fluid handling and filtration and car wash equipment markets. ACSI is a holding
company which, through its subsidiaries, operates businesses that it has
acquired with the intent to build an integrated fluid handling, filtration and
purification equipment manufacturing, distribution and service entity. ACSI
desires to offer a variety of products and technologies through its acquisitions
of companies, assets or businesses, which will provide added value to customers
through end user price and quality enhancement by providing specially designed
high end products to meet the technically demanding needs in their respective
markets. ACSI intends to selectively invest in internal growth and pursue
additional acquisitions that may enhance its existing competencies, market
presence and overall profitability.

          As a result of acquisitions and internal growth, the Company's
revenues gradually increased through December 31, 1998. Subsequent to the
disposal of ESSI and MWTI during the latter part of 1998, the Company began to
be more selective in the pursuit of business in an overall effort to increase
its gross margins. As a result of this plan, revenues decreased by 11.7%, with
gross margins increasing by 10.5%, from 1998 to 1999. In achieving growth prior
to 1999, the Company expended significant cash in making acquisitions and
developing the operations of its wholly-owned subsidiaries. In this connection,
see "Financial Condition and Liquidity" below.

RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1999 AND 1998

          Presented below are the condensed consolidated results of operations
for the Company for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
                                                               YEAR ENDED         YEAR ENDED
                                                           DECEMBER 31, 1999   DECEMBER 31, 1998
                                                           -----------------   -----------------
<S>                                                            <C>                <C>
Revenues                                                       $ 23,356,260       $ 26,449,286
Cost of revenues                                                 13,528,461         16,362,350
                                                               ------------       ------------

Gross profit                                                      9,827,799         10,086,936
Operating expenses, other than provision for
     the impairment of intangible assets                          8,535,189         11,024,586
Provision for the impairment of intangible assets                        --          1,052,039
                                                               ------------       ------------

Income (loss) from operations                                     1,292,610         (1,989,689)
Interest expense, net                                              (731,170)          (857,344)
Other income                                                             --            150,000
                                                               ------------       ------------

Net income (loss)                                              $    561,440       $ (2,697,033)
                                                               ============       ============

Earnings (loss) per common share - basic                       $       0.20       $      (0.98)
                                                               ============       ============

Earnings (loss) per common share - diluted                     $       0.20       $      (0.98)
                                                               ============       ============
</TABLE>

                                       11
<PAGE>

          Revenues decreased by $3,093,026, or 11.7%, from $26,449,286 for the
year ended December 31, 1998, to $23,356,260 for the year ended December 31,
1999. $2,485,982 of this decrease was due to the disposal of certain of the
Company's subsidiaries during 1998. (See Note 11 in "Notes to Consolidated
Financial Statements".) Of the remaining decrease in revenues, $1,358,030 was
due to a decrease in revenues recognized by the car wash equipment sales and
service segment. This reduction was caused by cutbacks in equipment and service
orders by certain major oil companies that had temporarily scaled down overall
purchasing due to industry consolidation. Increases in revenues of $462,492
earned by the industrial and municipal fluid handling and filtration segment and
in sales of $288,494 generated by the commercial and residential water
filtration and purification segment partially offset the above noted decrease.
Both such increases were mainly due to a more comprehensive internal and
external sales effort and the augmentation of these segments' independent
representative and dealer organizations.

          Cost of revenues decreased by $2,833,889, or 17.3%, from $16,362,350
for the year ended December 31, 1998, to $13,528,461 for the year ended December
31, 1999. As a percentage of revenues, these amounts represented 61.9% for 1998
as compared to 57.9% for 1999. The decrease in cost of revenues as a percentage
of revenues primarily was due to more efficient and effective purchasing and
overall management of the Company's production processes and the disposal of
certain of the Company's subsidiaries during 1998. (See Note 11 in "Notes to
Consolidated Financial Statements".) Cost of revenues as a percentage of
revenues for the industrial and municipal fluid handling and filtration,
commercial and residential water filtration and purification and car wash
equipment sales and service segments were 58.1%, 63.5% and 48.9%, respectively,
for the year ended December 31, 1999. Cost of revenues as a percentage of
revenues of such segments, excluding subsidiaries disposed of during 1998, for
the year ended December 31, 1998 were 60.7%, 64% and 52.6%, respectively. Cost
of revenues as a percentage of revenues for the subsidiaries disposed of during
1998, aggregated 82.6% for the year ended December 31, 1998.

          Gross profit decreased $259,137 or 2.6% from $10,086,936 for the year
ended December 31, 1998 to $9,827,799 for the year ended December 31, 1999,
which, as a percentage of revenues, represented an increase from 38.1% to 42.1%,
respectively, for such periods. Gross profit as a percentage of revenues for the
industrial and municipal fluid handling and filtration, commercial and
residential water filtration and purification and car wash equipment sales and
service segments were 41.9%, 36.5% and 51.1%, respectively, for the year ended
December 31, 1999. Gross profit as a percentage of revenues of such segments,
excluding subsidiaries disposed of during 1998, for the year ended December 31,
1998 were 39.3%, 36% and 47.4%, respectively. Gross profit as a percentage of
revenues for the subsidiaries disposed of during 1998, aggregated 17.4% for the
year ended December 31, 1998.

          The Company's operating expenses decreased by $3,541,436, or 29.3%,
from $12,076,625 for the year ended December 31, 1998, to $8,535,189 for the
year ended December 31, 1999. As a percentage of revenues, these expenses
decreased from 45.7% for 1998 to 36.5% for 1999. Of the $3,541,436 decrease,
$1,974,851 related to the recognition of non-recurring charges, of which
$1,052,039 was due to the permanent impairment of certain of the Company's
operating subsidiaries' intangible assets and $922,812 consisted of provisions
for doubtful accounts, existing claims and litigation and costs incurred
relating to the termination of a proposed acquisition during the year ended
December 31, 1998. The Company incurred no such non-recurring charges during the
year ended December 31, 1999. Additionally, $835,353 in operating expenses were
incurred by subsidiaries disposed of during 1998, (See Note 11 in "Notes to
Consolidated Financial Statements"). The remaining

                                       12
<PAGE>

$731,232 decrease in operating expenses was primarily in the expense categories
of payroll and related expenses ($608,100), travel expenses ($96,069),
provisions for doubtful accounts and notes ($95,784), investor relations and
similar expenses ($57,433) and depreciation and amortization ($21,986);
partially offset by increased selling expenses, mainly in the form of payments
to independent product representatives ($150,716). Management evaluates
operating expenses on a regular basis, and as such, adjusts resources allocated
to cover such expenses. Optimum levels of operating expenses are targeted and
adjusted according to business levels in order to provide maximum efficiency and
effectiveness.

          Interest expense, net, decreased $126,174, or 14.7%, from $857,344 for
the year ended December 31, 1998 to $731,170 for the year ended December 31,
1999. This decrease was mainly attributable to lower average outstanding debt
balances and interest rates on such outstanding debt balances for the year ended
December 31, 1999, as compared to the year ended December 31, 1998.

          Principally as a result of the factors described above, the Company
earned net income of $561,440 for the year ended December 31, 1999 as compared
to incurring a net loss of $(2,697,033) for the year ended December 31, 1998.
Due to the Company's net operating loss carryforwards, there was no income tax
liability for 1999. (See Note 7 in "Notes to Consolidated Financial
Statements".)

FINANCIAL CONDITION AND LIQUIDITY

          At December 31, 1999, the Company had $475,707 of cash and cash
equivalents, working capital of $979,922, total assets of $14,217,345, long-term
debt, net of current maturities, of $3,189,132 and stockholders' equity of
$6,003,730. During 1999, the Company's operating activities provided $1,404,571
of cash, as a result of depreciation and amortization ($641,790); net income
($561,440); a decrease in inventory ($533,440); a decrease in other assets
($86,300); pension contribution paid through the issuance of Common Stock
($64,933); and provisions for doubtful accounts and notes ($2,013); offset by an
increase in accounts receivable ($273,170); a decrease in accounts payable and
accrued expenses ($174,743); and an increase in prepaids and other ($37,432).
Investing activities used $591,260 due to capital expenditures ($664,004);
offset by payments received on notes receivable ($72,744). Financing activities
used $910,733 of cash, due to repayments of notes payable and long-term debt
($15,730,041); offset by the net proceeds from issuance of notes payable and
long-term debt ($14,819,308).

          During March 2000, the Company completed the refinancing of debt
remaining from the acquisition of the Filtration Systems Division of Durco
International, Inc. in June 1997. In order to consummate such acquisition, Aqua
Care incurred debt of approximately $5,200,000, which had since been paid down
to approximately $1,800,000 through March 2000. Under the terms of the original
financing, the Company had been paying approximately $120,000 per month in
principal and interest since June 1997. Pursuant to the new consolidating
arrangement, it will pay approximately $36,000 per month in principal and
interest, representing an increase in cash flow of over $1,000,000 on an annual
basis. Additionally, the interest rate on amounts refinanced is Prime plus
1.25%, (currently 10%); a significant reduction from the previous rates which
included a fixed 11% rate, combined with Prime plus 2-2.5%. The refinanced debt
maturity date, originally June 2, 2000, has been extended to June 2, 2005.

          Management expects to continue to make acquisitions to expand the
Company's markets. As consideration for an acquisition, the Company may issue
Common Stock, Preferred Stock, or other securities, notes or cash. Since cash
may be required either to consummate acquisitions, or to fund the operations of
new or existing businesses, including required principal payments related to
approximately

                                       13
<PAGE>

$2,040,000 of current maturities of long-term debt, management may, from time to
time, investigate and pursue various types of financing alternatives that are
available to the Company. These may include, but are not limited to, private
placements, secondary offerings, bridge financing, debentures, lines of credit
and asset-based loans. While management believes that financing will be
available for the Company to not only fund its current operations, but also to
fund its acquisition program, there can be no assurance such financing will be
on terms reasonably acceptable to the Company. No such acquisitions have
occurred since 1997, and currently there are no acquisitions pending. There can
be no assurance that any acquisitions will be consummated during 2000.

          A portion of the revenues of the Company, particularly through FSDA,
have been, and are expected to continue to be, generated from foreign countries.
For the years ended December 31, 1999 and 1998, export sales, principally to
other countries within North America, Asia and South America, aggregated
approximately $1,160,000 and $1,940,000, respectively. The Company invoices and
receives substantially all remittances in U.S. dollars. Notwithstanding the fact
that the Company expects its foreign contracts to be denominated in U.S.
dollars, the Company is subject to the risks associated with fluctuations in the
U.S. and foreign currencies and with political instability. In particular, if
the U.S. dollar increases significantly as compared to foreign currencies, this
could adversely impact the ability of the Company to secure orders and generate
revenues in foreign countries.

CAPITAL EXPENDITURE REQUIREMENTS

          During the year ended December 31, 1999, the Company spent $664,004 on
capital expenditures mainly relating to the purchase of machinery and equipment
at FSDA and the purchase of new, and upgrade of existing, computer systems
implemented by all of the Company's subsidiaries. During 2000, the Company
intends to utilize approximately $200,000 to purchase additional machinery and
equipment, most specifically at FSDA. The Company does not presently anticipate
any significant additional capital expenditures other than those noted above and
those relating to future acquisitions and the implementation of the Company's
new computer system as noted below.

NEW ACCOUNTING STANDARDS

          Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities", established
accounting and reporting standards for derivative instruments and for hedging
activities. It required that an entity recognize all derivatives as either
assets or liabilities in the statement of financial positions and measure those
instruments as fair value. The Statement applies to all entities and, as
amended, is effective for all fiscal quarters of the fiscal years beginning
after June 15, 2000. The Company did not engage in derivative instruments, nor
hedging activities, in any periods presented in the consolidated financial
statements.

YEAR 2000

          In the past, many computer software programs were written using two
digit rather than four to define the applicable year. As a result, date
sensitive computer software may recognize a date using "00" as the year 1900
rather than the Year 2000. This is generally referred to as the "Year 2000"
issue. If this situation occurs, the potential exists for computer system
failure or miscalculations by computer programs, which could disrupt operations.

                                       14
<PAGE>

          During 1999, the Company completed the implementation of its new, and
upgrade of its existing, computer systems to use 4-digit year fields and
believes itself to be "Year 2000" compliant. The aggregate cost of such projects
was approximately $300,000, and the Company does not expect to incur significant
costs relating to the "Year 2000" issue in the future. To date, the Company has
not experienced any internal nor external problems relating to the "Year 2000"
issue.

FORWARD LOOKING STATEMENTS

          This Form 10-KSB contains certain forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 with respect
to the financial condition, results of operations and business of the Company
and its subsidiaries, including statements made under Management's Discussion
and Analysis of Financial Condition and Results of Operations. These forward
looking statements involve certain risks and uncertainties. No assurance can be
given that any of such matters will be realized. Factors that may cause actual
results to differ materially from those contemplated by such forward looking
statements include, among others, the following: competitive pressures in the
industries noted; general economic and business conditions; the ability to
implement and the effectiveness of business strategy and development plans;
quality of management; business abilities and judgment of personnel;
availability of qualified personnel; and labor and employee benefit costs.

INFLATION

          The Company has not been materially affected by the impact of
inflation.

ITEM 7.   FINANCIAL STATEMENTS.

          See the consolidated financial statements and notes related thereto,
beginning on page F-1, included in this Annual Report on Form 10-KSB.

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE.

          None.

                                       15
<PAGE>

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

         The names and ages, along with certain biographical information (based
solely on information supplied by them), of the directors and executive officers
of the Company are as follows:

             NAME                  AGE                  POSITIONS
--------------------------------------------------------------------------------

Norman J. Hoskin(1)(4)              65          Chairman of the Board of
                                                  Directors, President and
                                                Chief Executive Officer,
                                                  Treasurer and Secretary

James P. Cefaratti(1)(2)(3)(4)      57          Director

David K. Lucas(2)(3)                59          Director

Peter C. Rossi(2)(3)                51          Director
----------------------------------------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Nominating Committee

         Directors of the Company are elected to serve for a term of one year or
until their successors are elected and qualify, or until their earlier death,
resignation or removal. The Company's officers are appointed annually by, and
serve at the pleasure of, the Board of Directors, subject to the terms of any
employment agreements.

         Norman J. Hoskin has been Chairman of the Board of Directors of Aqua
Care Systems, Inc. since December 1999 and was elected by the Board of Directors
to serve as President and Chief Executive Officer and Treasurer of the Company
upon the resignation of William K. Mackey in February 2000. Additionally, Mr.
Hoskin has served as the Company's Secretary since his initial election to the
Board of Directors in June 1995. He is also the Vice Chairman of American Artist
Film Corporation, the Chairman of the Board of Corinthian Health Services, Inc.
and has been Chairman and President of Bermuda International Capital Holdings,
Ltd., since its inception in 1998. Mr. Hoskin was also the founder and former
Chairman of Atlantic International Capital Holdings, Ltd., since its inception
in 1993. He has also served as Senior Vice President of Rentar Industries Group
and as President of Rentar Driver Services, Inc., one of the largest
transportation, warehousing and banking conglomerates in the United States prior
to the Deregulation Action of 1982. Mr. Hoskin has also served as Treasurer and
a director of Trinitech Systems and as Chairman of the Board of Tapistron
International. He has also acted as a director of Spintek Gaming and
Consolidated Industries, a holding company for eight publicly listed companies.
Mr. Hoskin received a Bachelor of Science degree from Wharton School of
Business, University of Pennsylvania.

                                       16
<PAGE>

         James P. Cefaratti has been a director of the Company since January
1992. Since November 1998, Mr. Cefaratti has been a private investor. From
November 1997 to November 1998, he served as President and Chief Operating
Officer of Amedisys, Inc., a home health care provider. From June 1995 to
December 1996, Mr. Cefaratti was President of Globalvision, Inc., a provider of
laser radial keratotomy. From July 1993 until June 1995, he was a private
investor. He served as President, CEO and a director of Home Intensive Care,
Inc., a home infusion and dialysis company, from December 1989 to June 1993.

         David K. Lucas has been a director of the Company since September 1997.
He has been an independent consultant performing sales and marketing consulting
for various entities within the fluid filtration and treatment industries since
1988. From 1982 to 1988, Mr. Lucas served as the Vice President of Sales and
Marketing of JWI, Inc. a filter press equipment manufacturing company. He was
employed in the capacity of Corporate Marketing Manager of Parkson Corporation,
a manufacturer of water pollution control capital equipment products from 1973
to 1981.

         Peter C. Rossi has been a director of the Company since July 1999. He
has been employed by Bloomingdale Properties, Inc., an investing company, since
1983, having served as its Treasurer since 1985. From 1979 to 1983, Mr. Rossi
was a Manager at the accounting firm of Deloitte and Touche. Rossi is a
Certified Public Accountant and has been a member of the American Institute of
Certified Public Accountants since 1981.

         Each director, who is not an employee of the Company, is currently
remunerated at the rate of $1,500 per month which covers all meetings attended
in person and telephonically. In addition, each director is granted options
under the terms of the 1994 Outside Directors' Stock Option Plan to purchase
2,500 shares of Common Stock on the last business day of the year preceding the
first Board of Directors meeting of each new calendar year at the then current
bid price, subsequent to serving one full calendar year as a director. Such
options are exercisable over the subsequent ten years and fully vest over a
one-year period from the date of grant. Pursuant to this program, the Company
has granted options under the aforementioned Plan as follows:

                                       NUMBER OF SHARES      OPTION PRICE RANGE
--------------------------------------------------------------------------------
Outstanding at January 1, 1998              82,500           $1.76 - $20.00
Granted                                     70,000           $1.19 - $1.64
Cancelled                                  (12,500)          $8.00
                                           -------

Outstanding at December 31, 1998           140,000           $1.19 - $20.00
Granted                                     17,500           $1.56 - $1.63
Cancelled                                       --                       --
                                           -------
Outstanding at December 31, 1999
  and February 29, 2000                    157,500           $1.19 - $20.00
                                           =======

                                       17
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION.

SUMMARY COMPENSATION TABLE

         The following table sets forth information for the years ended December
31, 1999, 1998 and 1997, representing compensation earned by the Chief Executive
Officer of the Company as of the end of the fiscal year 1999 (the "Named
Executive Officer"), in all capacities in which he served.

ANNUAL COMPENSATION
<TABLE>
<CAPTION>
                                                                                                      LONG-TERM
                                                                                                    COMPENSATION
                                                                                  OTHER ANNUAL        NUMBER OF
    NAME AND PRINCIPAL POSITIONS           YEAR       SALARY      BONUS           COMPENSATION      OPTIONS GRANTED
-------------------------------------------------------------------------------------------------------------------
<S>                                         <C>      <C>        <C>                 <C>               <C>
William K. Mackey(3)                        1999     $155,000   $25,000(1)          $7,200(2)             --
  Chairman of the Board, President and      1998     $155,000   $86,800(1)          $7,200(2)         100,000(3)
  Chief Executive Officer and Treasurer     1997     $160,962        --             $7,200(2)         150,000(3)
</TABLE>

STOCK OPTION GRANTS IN 1999

         The following table contains information concerning the grant of stock
options to the Named Executive Officer in 1999:
<TABLE>
<CAPTION>
                                                          INDIVIDUAL GRANTS
                       ---------------------------------------------------------------------------------------
                                                          % OF TOTAL OPTIONS
                          NUMBER OF SECURITIES           GRANTED TO EMPLOYEES     EXERCISE PRICE    EXPIRATION
      NAME             UNDERLYING OPTIONS GRANTED           IN FISCAL YEAR           PER SHARE         DATE
--------------------------------------------------------------------------------------------------------------
<S>                                <C>                            <C>                   <C>             <C>
William K. Mackey(3)               --                             --                    --              --
</TABLE>

STOCK OPTION EXERCISES IN 1999 AND OPTION VALUES AT DECEMBER 31, 1999

         The following table provides information with respect to options
exercised by the Named Executive Officer during 1999 and the number and value of
securities underlying unexercised options held by the Named Executive Officer at
December 31, 1999:
<TABLE>
<CAPTION>
                                                               NUMBER OF SECURITIES                   VALUE OF UNEXERCISED
                                                          UNDERLYING UNEXERCISED OPTIONS              IN-THE-MONEY OPTIONS
                            SHARES                             AT DECEMBER 31, 1999                   AT DECEMBER 31, 1999
                           ACQUIRED        VALUE          --------------------------------    ----------------------------------
       NAME              ON EXERCISE      REALIZED         EXERCISABLE       UNEXERCISABLE    EXERCISABLE       UNEXERCISABLE
--------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>             <C>              <C>                   <C>             <C>                 <C>
William K. Mackey(3)         --              --               344,167               8,333           --                  --
-------------------------------------------------------------------------------------
<FN>
(1)  Represents bonuses earned based upon parameters set forth in the Named Executive's Employment Agreement.
(2)  Represents a monthly auto expense allowance of $600.
(3)  Mr. Mackey  resigned from all positions held with the Company on February 28, 2000. In connection  therewith,  the Board
     of Directors extended the exercisable period of Mackey's options to purchase the Company's Common Stock to December 31, 2000.
</FN>
</TABLE>

                                       18
<PAGE>

EMPLOYMENT AGREEMENT

         On August 7, 1997, the Company entered into a five-year employment
agreement with William K. Mackey, Chairman of the Board, President, Chief
Executive Officer and Treasurer. The Agreement provided that Mr. Mackey would
receive an annual base salary of $155,000, plus a bonus, if any, as determined
by the Board of Directors. Mackey resigned from all positions held with the
Company on February 28, 2000. In accordance with such resignation, the Board of
Directors agreed to pay him $480,000 in equal installments of $40,000 per month
beginning April 1, 2000, and extend all of his options to purchase the Company's
Common Stock through December 31, 2000.

OUTSIDE DIRECTORS' PLAN AND PERFORMANCE EQUITY PLAN

         At December 31, 1999 the Company has two stock option plans, which are
described below.

         OUTSIDE DIRECTORS' PLAN. The Company's shareholders have adopted the
1994 Outside Directors' Stock Option Plan (the "Outside Directors' Plan") for
the Company's directors who are not employees or officers of the Company or its
subsidiaries ("Eligible Directors") rendering advisory service to the Board of
Directors. The Outside Directors' Plan has reserved an aggregate of 400,000
shares of Common Stock and provides for the grant of non-qualified stock options
("NQSOs") which have an exercise period extending for ten years from the date of
the grant. The purchase price of the shares of Common Stock covered by each
option granted under the Outside Directors' Plan is the fair market value of the
shares as of the date of grant. Each Eligible Director who is newly-elected is
granted an option to purchase not less than 2,500 and not more than 12,500
shares of the Common Stock of the Company on the date such director is initially
elected or otherwise selected to the Board of Directors. The exact amount is
determined by the directors serving prior to the effective date of the Outside
Directors' Plan. All Eligible Directors are granted options to purchase 2,500
shares of the Common Stock of the Company on each December 31, if such Eligible
Director has completed a full year of service as a member of the Board of
Directors of the Company.

         PERFORMANCE EQUITY PLAN. On May 13, 1991, the Company's stockholders
adopted the 1991 Performance Equity Plan (the "Performance Equity Plan"). There
are 2,000,000 shares of Common Stock reserved pursuant to the Performance Equity
Plan. The Performance Equity Plan provides for the grant of a variety of
incentive awards to officers, key employees, consultants and independent
contractors of the Company.

         The Performance Equity Plan authorizes the grant of incentive awards
which may consist of stock options, restricted stock awards, deferred stock
awards, stock appreciation rights and other stock-based awards. The Performance
Equity Plan expires at the close of business on May 13, 2001, unless sooner
terminated; provided however that all awards previously granted shall remain
outstanding for the respective terms of such awards. Officers, directors, and
other key employees and prospective employees and consultants and independent
contractors who perform services for the Company or any of its subsidiaries,
(but excluding members of the stock option committee and any person who serves
as a director only), ("Eligible Persons"), are eligible to receive awards under

                                       19
<PAGE>

the Plan. The Performance Equity Plan is administered by the Board of Directors
or the Compensation and Stock Option Committee (the "Committee") appointed by
the Board of Directors, which determines the persons to whom awards will be
granted, the number of awards to be granted and the specific terms of each
grant, subject to the provisions of the Performance Equity Plan.

         OUTSTANDING AWARDS. Options to purchase an aggregate of 758,100 shares
of the Company's Common Stock have been granted and are outstanding as of
February 29, 2000, under the Outside Directors' Plan and Performance Equity Plan
as follows:

                                      NUMBER OF SHARES       OPTION PRICE RANGE
--------------------------------------------------------------------------------

Outstanding at January 1, 1998             493,958           $1.64 - $20.00
Granted                                    200,450           $1.19 - $1.75
Cancelled                                  (81,808)          $1.64 - $8.00
                                           -------

Outstanding at December 31, 1998           612,600           $1.19 - $20.00
Granted                                    112,400           $1.00 - $1.63
Cancelled                                  (16,900)          $1.00 - $1.75
                                           -------

Outstanding at December 31, 1999           708,100           $1.00 - $20.00
Granted                                     50,000           $1.56
                                           -------

Outstanding at February 29, 2000           758,100           $1.00 - $20.00
                                           =======

         At December 31, 1999 and 1998, 575,830 and 315,259 options with
weighted average option prices of $3.50 and $4.86, respectively, were
exercisable.

         In January 2000, certain employees of the Company were granted options
to purchase a total of 50,000 shares of Common Stock at $1.56 per share (market
value at the date of grant). The above options expire ten years from the date of
grant, and are exercisable one-third each year beginning one year from the date
of grant.

401(K) PLAN

         In January 1994, the Company adopted a 401(k) employee savings and
retirement plan. Under the provisions of the Plan, the Company may elect to
match each employee's contribution to the Plan at the rate of 50% in Company
Common Stock. The Common Stock is restricted stock and vests over a two-year
period on a quarterly basis. During 1999 and 1998, the Company contributed
99,193 and 96,592 shares of restricted Common Stock valued at $64,933 and
$62,788, respectively.

                                       20
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The following table sets forth information as to the number of shares
of Common Stock beneficially owned as of February 29, 2000, by (i) each person
who is believed by the Company to be a beneficial owner of more than 5% of the
outstanding Common Stock of the Company; (ii) each director of the Company;
(iii) the Named Executive Officer; and (iv) all directors and executive officers
of the Company as a group.

                                             NUMBER OF        PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1)    SHARES OWNED      COMMON STOCK(3)
--------------------------------------------------------------------------------

Norman J. Hoskin(4)                         48,750                1.7%

James P. Cefaratti(5)                       33,750                1.2%

David K. Lucas(6)                           22,575                   *

Peter C. Rossi(2)(7)                       572,500               19.7%

Aqua Care Systems, Inc.
  401(k) Savings Plan and Trust            237,147                8.2%

William K. Mackey(8)                       376,500               11.6%

Directors and executive officers,
   as a group, (four persons)              677,575(9)            22.8%

         Except as set forth below, all shares of Common Stock are directly
owned and the sole investment and voting power are held by the entities noted.

(1)      Except as otherwise set forth, the address for all of these individuals
         and entities is 11820 NW 37 Street, Coral Springs, FL 33065.

(2)      The address for this person is 641 Lexington Avenue, 29th Floor, New
         York, NY 10022.

(3)      Based upon 2,899,506 shares of Common Stock issued and outstanding as
         of February 29, 2000, of which 863,722 are included herein, along with
         427,500 shares of Common Stock which such individuals have the right to
         acquire within sixty days of February 29, 2000.

(4)      Includes options to purchase 28,750 shares of Common Stock.

(5)      Includes options to purchase 33,750 shares of Common Stock.

(6)      Includes options to purchase 12,500 shares of Common Stock.

(7)      Includes 572,500 shares of Common Stock of which the named person has
         shared dispositive power.

(8)      Includes options to purchase 340,000 shares of Common Stock granted by
         the Company and additional options to purchase an aggregate of 12,500
         shares of Common Stock granted by Kinder Investments, L.P. and Peter N.
         Christos.

(9)      Includes options to purchase 75,000 shares of Common Stock.

 *       Less than 1%.

                                       21
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         None.

                                       22
<PAGE>

                                     PART IV

ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K

   3.1     Certificate of Incorporation of the Registrant filed as
           Exhibit (3)-1 to the Company's Registration Statement on Form
           SB-2 (Registration No. 33-67252) is hereby incorporated herein
           by reference.
   3.2     By-laws of the Registrant filed as Exhibit 3.2 to the
           Company's Registration Statement on Form SB-2 (Registration
           No. 33-67252) is hereby incorporated by reference.
   10.1    Distribution Agreement between the Company and Ryko
           Manufacturing Company dated July 1, 1997 is hereby
           incorporated herein by reference.
   10.2    Employment Agreement dated August 7, 1997 by and between the
           Company and William K. Mackey is hereby incorporated herein by
           reference.
   10.3    Loans and Security Agreements, (Term Loan, Inventory and Term
           Loans, A/R Loan), dated June 4, 1997, between ACS Acquisition
           Corp. and Fidelity Funding of California, Inc. are hereby
           incorporated herein by reference.
   10.4    Debenture Purchase Agreement between the Company and Sirrom
           Capital Corporation, d/b/a Tandem Capital, dated June 30,
           1998, is hereby incorporated by reference.
   10.5    Amended and Restated Loan and Security Agreement between ACS
           Acquisition Corp. and Guaranty Business Credit Corporation,
           d/b/a Fidelity Funding, dated March 14, 2000.
   21.1    Subsidiaries of the Registrant.
   27.1    Financial Data Schedule.


                                       23
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Coral Springs, State of
Florida, on March 24, 2000.

                                AQUA CARE SYSTEMS, INC.


                                /S/ NORMAN J. HOSKIN
                                ------------------------------------------------
                                Norman J. Hoskin
                                Chairman of the Board, President and
                                Chief Executive Officer, Treasurer and Secretary

         KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Norman J. Hoskin and George J. Overmeyer,
and each of them, his attorney-in-fact with power of substitution for him in any
and all capacities, to sign any amendments and supplements relating to this
Annual Report on Form 10-KSB, or other instructions he deems necessary or
appropriate, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute may do
or cause to be done by virtue hereof.

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE                           TITLE                                           DATE
---------                           -----                                           ----
<S>                                 <C>                                         <C>
/S/ NORMAN J. HOSKIN                Chairman of the Board, President            March 24, 2000
--------------------------
Norman J. Hoskin                    and Chief Executive Officer,
                                    Treasurer and Secretary

/S/ GEORGE J. OVERMEYER             Vice President of Finance and               March 24, 2000
--------------------------
George J. Overmeyer                 Principal Accounting Officer

/S/ JAMES P. CEFARATTI              Director                                    March 24, 2000
--------------------------
James P. Cefaratti

/S/ DAVID K. LUCAS                  Director                                    March 24, 2000
--------------------------
David K. Lucas

/S/ PETER C. ROSSI                  Director                                    March 24, 2000
--------------------------
Peter C. Rossi
</TABLE>

                                       24
<PAGE>

                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                      PAGE
                                                                     NUMBER
                                                                     ------

Report of Independent Certified Public Accountants                    F-2


Consolidated Balance Sheets
     as of December 31, 1999 and 1998                                 F-3


Consolidated Statements of Operations
     for the years ended December 31, 1999 and 1998                   F-4


Consolidated Statements of Stockholders' Equity
     for the years ended December 31, 1999 and 1998                   F-5


Consolidated Statements of Cash Flows
     for the years ended December 31, 1999 and 1998                   F-6


Notes to Consolidated Financial Statements                            F-7


                                      F-1
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors of
Aqua Care Systems, Inc.

         We have audited the accompanying consolidated balance sheets of Aqua
Care Systems, Inc. as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Aqua Care
Systems, Inc. at December 31, 1999 and 1998, and the results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.



Miami, Florida                                          BDO Seidman, LLP
February 11, 2000, except for
  Note 5(b), which is as of March 14, 2000


                                      F-2
<PAGE>

                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                        1999             1998
                                                                                    ------------      ------------
<S>                                                                                 <C>               <C>
ASSETS
Current assets
     Cash and cash equivalents................................................      $    475,707      $    573,129
     Accounts receivable, net of allowance
         for doubtful accounts of $160,000 and $260,000 .......................        3,130,147         2,858,990
     Inventory ................................................................        2,076,032         2,609,472
     Current maturities of notes receivable ...................................           48,000            72,744
     Prepaids and other .......................................................          274,519           237,087
                                                                                    ------------      ------------
Total current assets ..........................................................        6,004,405         6,351,422

Property, plant and equipment, net ............................................        5,135,675         4,837,671
Intangible assets, net ........................................................        2,721,081         2,996,871
Notes receivable, less current maturities .....................................           32,000            80,000
Other assets ..................................................................          324,184           301,484
                                                                                    ------------      ------------
Total assets..................................................................      $ 14,217,345      $ 14,567,448
                                                                                    ============      ============

LIABILITIES
Current liabilities
     Accounts payable.........................................................      $  2,068,094      $  1,751,847
     Accrued expenses .........................................................          794,851         1,285,841
     Current maturities of long-term debt .....................................        2,036,538         2,560,439
     Indebtedness to related party ............................................          125,000           125,000
                                                                                    ------------      ------------

Total current liabilities .....................................................        5,024,483         5,723,127

Long-term debt, less current maturities .......................................        3,189,132         3,575,964
                                                                                    ------------      ------------

Total liabilities .............................................................        8,213,615         9,299,091
                                                                                    ------------      ------------

COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS

STOCKHOLDERS' EQUITY
     Preferred stock, $.001 par; 5,000,000 shares
         authorized, none outstanding .........................................               --                --
     Common stock, $.001 par; 30,000,000 shares
         authorized, 2,899,506 and 2,800,313 shares
         issued and outstanding ...............................................            2,900             2,800
     Additional paid-in capital ...............................................       17,102,319        16,928,486
     Deficit ..................................................................      (11,101,489)      (11,662,929)
                                                                                    ------------      ------------

Total stockholders' equity ....................................................        6,003,730         5,268,357
                                                                                    ------------      ------------

Total liabilities and stockholders' equity....................................      $ 14,217,345      $ 14,567,448
                                                                                    ============      ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>

                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                          For the year ended
                                                                             December 31,
                                                                     1999                  1998
                                                                ------------           ------------
<S>                                                             <C>                    <C>
Revenues ...................................................    $ 23,356,260           $ 26,449,286

Cost of revenues ...........................................      13,528,461             16,362,350
                                                                ------------           ------------

Gross profit ...............................................       9,827,799             10,086,936
                                                                ------------           ------------

Operating expenses:
     Selling, general and administrative ...................       7,893,399             10,319,778
     Depreciation and amortization .........................         641,790                704,808
     Provision for the impairment of intangible assets......              --              1,052,039
                                                                ------------           ------------

Total operating expenses ...................................       8,535,189             12,076,625
                                                                ------------           ------------

Income (loss) from operations ..............................       1,292,610             (1,989,689)

Interest expense, net ......................................        (731,170)              (857,344)

Other income ...............................................              --                150,000
                                                                ------------           ------------

Net income (loss) ..........................................    $    561,440           $ (2,697,033)
                                                                ------------           ------------

Earnings (loss) per common share - basic ...................    $       0.20           $      (0.98)
                                                                ============           ============

Earnings (loss) per common share - diluted .................    $       0.20           $      (0.98)
                                                                ============           ============
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>

                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                   COMMON STOCK
                                          ------------------------------     ADDITIONAL
                                                                               PAID-IN
                                             SHARES            AMOUNT          CAPITAL          DEFICIT           TOTAL
                                          ------------      ------------     ------------     ------------      ------------
<S>                                          <C>             <C>              <C>              <C>               <C>
           Amounts at January 1, 1998         2,703,782      $      2,704     $ 16,787,794     $ (8,965,896)     $  7,824,602


        Warrants issued in connection
            with the issuance of debt
             and consulting agreement               --                --           78,000               --            78,000


Contribution to Employee Benefit Plan           96,592                96           62,692               --            62,788

   Reversion of shares to the Company              (61)               --               --               --                --


                             Net loss               --                --               --       (2,697,033)       (2,697,033)
                                          ------------      ------------     ------------     ------------      ------------


         Amounts at December 31, 1998        2,800,313             2,800       16,928,486      (11,662,929)        5,268,357


        Warrants issued in connection
            with the issuance of debt
             and consulting agreement               --                --          109,000               --           109,000


Contribution to Employee Benefit Plan           99,193               100           64,833               --            64,933

                           Net income               --                --               --          561,440           561,440
                                          ------------      ------------     ------------     ------------      ------------


         Amounts at December 31, 1999        2,899,506      $      2,900     $ 17,102,319     $(11,101,489)     $  6,003,730
                                          ============      ============     ============     ============      ============
</TABLE>


           See accompanying notes to consolidated financial statements

                                      F-5
<PAGE>

                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                    FOR THE YEAR ENDED
                                                                       DECEMBER 31,
                                                                 1999              1998
                                                             ------------      ------------
<S>                                                          <C>               <C>
OPERATING ACTIVITIES:
Net income (loss)                                            $    561,440      $ (2,697,033)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
     Gain on sale of net assets                                        --          (150,000)
     Provision for doubtful accounts and notes                      2,013           326,948
     Depreciation and amortization                                641,790           704,808
     Provision for impairment of goodwill                              --         1,052,039
     Pension contribution paid through issuance of
        Common Stock                                               64,933            62,788
Changes in assets and liabilities net of effects
of businesses acquired and sold:
     (Increase) decrease in accounts receivable                  (273,170)          212,655
     Decrease in costs and estimated earnings
        in excess of billings                                          --           153,443
     Decrease in inventory                                        533,440           205,000
     Increase in prepaids and other                               (37,432)          (97,351)
     Decrease in other assets                                      86,300            19,685
     (Decrease) increase in accounts payable and accrued
        expenses                                                 (174,743)          485,888
                                                             ------------      ------------

Net cash provided by operating activities                       1,404,571           278,870
                                                             ------------      ------------

INVESTING ACTIVITIES:

     Payments received on notes receivable                         72,744           104,406
     Capital expenditures                                        (664,004)         (371,274)
     Payments received for sale of net assets                          --           210,275
                                                             ------------      ------------

Net cash used in investing activities                            (591,260)          (56,593)
                                                             ------------      ------------

FINANCING ACTIVITIES:

     Proceeds from issuance of notes payable and
        long-term debt                                         14,819,308        16,170,690
     Repayment of notes payable and
        long-term debt                                        (15,730,041)      (16,474,770)
                                                             ------------      ------------

Net cash used in financing activities                            (910,733)         (304,080)
                                                             ------------      ------------

Net decrease in cash and cash equivalents                         (97,422)          (81,803)
Cash and cash equivalents, beginning of year                      573,129           654,932
                                                             ------------      ------------

Cash and cash equivalents, end of year                       $    475,707      $    573,129
                                                             ============      ============
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      F-6
<PAGE>

                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         BUSINESS

         Aqua Care Systems, Inc. and subsidiaries, (the "Company" or "ACSI"), is
engaged in the design, engineering, manufacturing, assembly, sales, marketing,
distribution and service of filtration systems and products, flow control
systems and products, water filtration and purification products and car wash
equipment sales and service. Currently, it provides equipment sales and service
for clients in the United States and abroad. Active subsidiaries include
Filtration Systems Division of Aqua Care Systems, Inc., ("FSDA"), DuraMeter Pump
Company, Inc., ("DMPC"), Gravity Flow Systems, Inc., ("GFSI"), KISS
International, Inc., ("KISS"), Di-tech Systems, Inc., ("DTSI"), and Car Wash
Equipment & Supply, Ryko of South Florida, Inc., ("CWES").

         PRINCIPLES OF CONSOLIDATION

         The accompanying consolidated financial statements include the accounts
of all subsidiaries. All material intercompany transactions and accounts have
been eliminated in consolidation.

         PREPARATION OF FINANCIAL STATEMENTS

         The preparation of financial statements in conformity with generally
accepted accounting principles 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.

         INVENTORY

         Inventory consists principally of materials, purchased parts and work
in process. Inventory is valued at the lower of cost (first-in, first-out
method) or market.

         PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment are recorded at cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the
assets, ranging from five to thirty years.

         INTANGIBLE ASSETS

         The excess of the cost over the fair value of net assets of purchased
businesses is recorded as goodwill and is amortized on a straight-line basis
over 15 years. The Company continually evaluates the carrying value of goodwill.
Impairments are recognized when the expected future undiscounted operating cash
flows to be derived from such intangible assets are less than their carrying
values.

                                      F-7
<PAGE>

                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         REVENUE RECOGNITION

         Equipment and parts sales are recognized when products are shipped, and
service revenues are recognized as the services are performed. Additionally, the
Company recognizes revenue on certain filtration systems contracts on the
percentage of completion method, based generally on the ratio of costs incurred
to date on the contract to the total estimated contract cost.

         INCOME TAXES

         Income taxes are accounted for using the liability approach under the
provisions of Financial Accounting Standards No. 109.

         FAIR VALUE OF FINANCIAL INSTRUMENTS

         The Company's financial instruments consist principally of cash and
cash equivalents, accounts receivable, notes receivable, accounts payable,
accrued expenses and long-term debt. Due to the short-term nature and variable
rate on a significant portion of the Company's debt, management believes that
the carrying amounts of such financial instruments as reflected in the
consolidated balance sheets approximate their estimated fair value as of
December 31, 1999 and 1998. The estimated fair value is not necessarily
indicative of the amounts the Company could realize in a current market exchange
or of future earnings or cash flows.

         STOCK BASED COMPENSATION

         The Company recognizes compensation expense for its employee and
director stock option incentive plans using the intrinsic value method of
accounting. Under the terms of the intrinsic value method, compensation cost is
the excess, if any, of the quoted market price of the stock at the grant date,
or other measurement date, over the amount an employee must pay to acquire the
stock.

         EARNINGS (LOSS) PER SHARE

         Basic earnings per share are computed on the basis of the weighted
average number of common shares outstanding during each year. Diluted earnings
per share are computed on the basis of the weighted average number of common
shares and dilutive securities outstanding. Dilutive securities having an
anti-dilutive effect on diluted earnings per share are excluded from the
calculation.

         STATEMENTS OF CASH FLOWS

         For purposes of the statements of cash flows, the Company considers all
highly liquid investments with initial maturities of three months or less to be
cash equivalents.

         ADVERTISING COSTS

         The Company expenses production costs of print advertisements as of the
first date the advertisements take place. Advertising expenses included in
selling, general and administrative expenses for the years ended December 31,
1999 and 1998, were approximately $96,000 and $91,000, respectively.

                                      F-8
<PAGE>
                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         NEW ACCOUNTING STANDARDS

         Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities", establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The Statement applies to all entities and is effective for all
fiscal quarters of the fiscal years beginning after June 15, 2000. The Company
did not engage in derivative instruments or hedging activities in any periods
presented in the consolidated financial statements. Accordingly, management
anticipates implementation of SFAS No. 133 will not have a material effect on
the Company's financial position or results of operations.

2.       INVENTORY
<TABLE>
<CAPTION>
                                   DECEMBER 31, 1999  DECEMBER 31, 1998
                                   -----------------  -----------------
<S>                                   <C>              <C>
Materials and purchased parts ...     $ 1,873,134      $ 1,798,051
Work in process .................         202,898          811,421
                                      -----------      -----------

Total inventory .................     $ 2,076,032      $ 2,609,472
                                      ===========      ===========
</TABLE>
3.       PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
                                   DECEMBER 31, 1999  DECEMBER 31, 1998
                                   -----------------  -----------------
<S>                                   <C>              <C>
Land and buildings ..............     $ 2,745,427      $ 2,745,427
Machinery and equipment .........       2,959,604        2,323,455
Furniture and fixtures ..........         677,087          652,726
Leasehold improvements ..........          30,944           27,450
                                      -----------      -----------

                                        6,413,062        5,749,058
Less accumulated depreciation ...      (1,277,387)        (911,387)
                                      -----------      -----------

Net property, plant and equipment     $ 5,135,675      $ 4,837,671
                                      ===========      ===========
</TABLE>
4.       INTANGIBLE ASSETS
<TABLE>
<CAPTION>
                                   DECEMBER 31, 1999  DECEMBER 31, 1998
                                   -----------------  -----------------
<S>                                   <C>              <C>
Goodwill ........................     $ 4,134,266      $ 4,134,266
Less accumulated amortization ...      (1,413,185)      (1,137,395)
                                      -----------      -----------

Net intangible assets ...........     $ 2,721,081      $ 2,996,871
                                      ===========      ===========
</TABLE>

         During 1998, certain of the Company's subsidiaries, Gravity Flow
Systems, Inc., Midwest Water Technologies, Inc. and EnviroSystems Supply, Inc.,
recognized impairments of net intangible assets, including goodwill, patents and
trademarks, previously recorded aggregating $1,052,039. Such impairments were
recognized as the Company did not expect positive future operating cash flows to
be derived from such intangible assets.

                                      F-9
<PAGE>
                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.       LONG-TERM DEBT
<TABLE>
<CAPTION>
                                                                                      DECEMBER 31, 1999      DECEMBER 31, 1998
                                                                                      -----------------      -----------------
<S>                                                                                       <C>                   <C>
12% note payable, interest only payable quarterly with a balloon payment of
$1,150,000 due June 2003, collateralized
by substantially all of the assets of the Company ..............................          $ 1,150,000           $ 1,200,000

Prime plus 2%, (10.5% at December 31, 1999), revolving credit lines, providing
for borrowings, subject to certain collateral requirements and loan covenants,
of up to $3,500,000 through June 2000, principally collateralized by accounts
receivable and inventory of FSDA and DMPC ......................................            1,527,655             1,486,876

Prime plus 2.5%, (11% at December 31, 1999), note payable, principal and
interest payable monthly with an estimated balloon payment of approximately
$400,000 due June 2000, principally collateralized by property and plant of
FSDA and DMPC (See (b) below) ..................................................              549,200               899,600

Prime plus 2.5%, (11% at December 31, 1999), note payable, principal and
interest payable monthly with an estimated balloon payment of approximately
$130,000 due June 2000, principally collateralized by machinery and equipment of
FSDA and DMPC (See (b) below) ..................................................              190,800               320,400

11% note payable, principal and interest payable monthly with an estimated
balloon payment of approximately $600,000 due March 2001, collateralized by all
the assets of FSDA and DMPC
(See (b) below) ................................................................            1,194,499             1,674,499

8.5% mortgage note payable, principal and interest payable monthly
through October 2014, collateralized by land and building of ACSI ..............              566,887                    --

9.50% note payable, principal and interest payable monthly through
June 2002, collateralized by substantially all of the assets of GFSI ...........               46,629                62,386

9.25% mortgage note payable, collateralized by land and building,
paid October 1999 ..............................................................                   --               412,642

Prime plus 1%, notes payable, paid April 1999 ..................................                   --                80,000
                                                                                          -----------           -----------

                                                                                            5,225,670             6,136,403

Less current maturities ........................................................           (2,036,538)           (2,560,439)
                                                                                          -----------           -----------

Total long-term debt ...........................................................          $ 3,189,132           $ 3,575,964
                                                                                          ===========           ===========
</TABLE>

                                      F-10
<PAGE>
                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 1999, scheduled maturities of long-term debt, are:

                      2000                           $  2,036,538
                      2001                                318,889
                      2002                                189,302
                      2003                              1,306,622
                      2004                                158,796
                   Thereafter                           1,215,523
                                                     ------------

                                                     $  5,225,670
                                                     ============

         (a) The weighted average interest rate of borrowing under the Company's
revolving lines of credit was 10.1% and 10.6% for the years ended December 31,
1999 and 1998, respectively.

         (b) On March 14, 2000, the Company refinanced the above noted debt. In
connection with such refinancing, the principal payments were reduced from
$80,000 to $23,191 per month, and the interest rates were reduced from Prime
plus 2.5% and 11% fixed to Prime plus 1.25%, (10% at March 14, 2000).
Accordingly, $748,086 of short-term debt has been reclassified to long-term
debt.

         (c) During July 1998, the Company received net proceeds of $1,465,847
from the issuance of $1,500,000 in secured subordinated debentures which bear
interest at the rate of 12% per year. Such debentures are due June 2003 with no
pre-payment penalty. Interest is due and payable on a quarterly basis beginning
August 1998. In conjunction with the above noted financing, the Company issued
115,500 warrants to purchase the Company's Common Stock at an exercise price of
$2.60 per share. The warrants contain certain call provisions based on the
repayment of the debentures and certain market contingencies. Additionally,
beginning June 30, 1999 and on each anniversary thereafter that such debentures
remain outstanding, the Company has agreed to issue to the holder, 30,000
warrants with an exercise price equal to the average bid price for the 20 days
prior to such anniversary dates. Based upon the aforementioned, on June 30,
1999, the Company issued 30,000 warrants to purchase the Company's Common Stock
at an exercise price of $1.30 per share valued at $51,000 using the
Black-Scholes pricing model. Such costs were deferred and are being amortized
over the remaining term of the subordinated debentures.

         (d) The Company's loan agreements contain restrictive covenants which
require the Company to, among other things, maintain a minimum tangible net
worth and maintain certain financial ratios. Certain of such loans also provide
that the lenders may, at their options, accelerate such loans as a result of,
among other things, a material adverse change in the Company's financial
position or results of operations. The lenders have not notified the Company
that any such events have occurred, and the Company does not expect that such
notice will be received.

6.       INDEBTEDNESS TO RELATED PARTY AND RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
                                                                    DECEMBER 31, 1999          DECEMBER 31, 1998
                                                                    -----------------          -----------------
<S>                                                                   <C>                        <C>
10% unsecured notes payable to a former affiliated
entity, matured October 1994......................................... $     125,000              $     125,000
                                                                      =============              =============
</TABLE>

         Interest expense on related party indebtedness aggregated $12,500 for
each of the years ended December 31, 1999 and 1998.

                                      F-11
<PAGE>
                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.       INCOME TAXES

         At December 31, 1999 and 1998, the Company has approximately $6,950,000
and $7,680,000, respectively, of net operating loss carryforwards expiring
through 2018, for both financial reporting and income tax purposes. Changes in
ownership in 1995 of greater than 50% occurred as a result of the Company's
issuances of Common Stock which resulted in an approximate $760,000 annual
limitation being imposed upon the future utilization of approximately $6,300,000
of the Company's net operating losses for tax purposes. Realization of the
approximate $2,620,000 and $2,890,000 deferred tax assets at December 31, 1999
and 1998, respectively, resulting mainly from the available net operating loss
carryforwards, is not considered more likely than not and accordingly, a
valuation allowance has been recorded for the full amount of such assets.

         The reconciliation between the provisions (benefit) for income taxes
and the amount which results from applying the federal statutory rate of 34% to
income (loss) before income taxes is as follows:

                                                            1999           1998
                                                          -------         ------

Income tax expense (credit) at statutory federal rate       34.0%        (34.0)%
State taxes, net of federal benefits (taxes)                 3.6%         (2.3)%
Amortization of goodwill                                    16.7%           3.4%
Write-off of goodwill                                         --            8.6%
Other, net                                                 (5.5)%          10.1%
(Decrease) increase in valuation reserve                  (48.8)%          14.2%
                                                          -------         ------

Effective income tax rate                                    0.0%           0.0%
                                                          =======         ======

8.       EQUITY TRANSACTIONS

         (a) At December 31, 1999, the Company has two stock option plans, which
are described below. The Company applies APB Opinion 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, and related Interpretations in accounting for options
granted to employees. Under APB Opinion 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation cost is recognized.

         Under the 1991 Performance Equity Plan, the Company may grant options
to its employees and certain consultants for up to 2,000,000 shares of Common
Stock. Under the 1994 Outside Directors' Plan, the Company may grant options to
its directors for up to 400,000 shares of Common Stock. For both plans, the
exercise price of each option equals the market price of the Company's stock on
the date of grant and an option's maximum term is 10 years.

         FASB Statement 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, requires
the Company to provide pro forma information regarding net income and earnings
per share as if compensation cost for the Company's stock option plans has been
determined in accordance with the fair value based method prescribed in FASB
Statement 123. The Company estimates the fair value of each stock option at the
grant date by using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1999 and 1998; no dividend yield
for all years; expected volatility of 46 and 75 percent, respectively; risk-free
interest rates of 5.6 and 5.6 percent, respectively and expected lives of 8.2
and 7.8 years, respectively.

                                      F-12
<PAGE>
                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         Under the accounting provisions of FASB Statement 123, the Company's
net income (loss) and net income (loss) per common share would have been as
follows:
                                                       1999            1998
                                                    ---------     --------------

         Net income (loss)         As reported      $ 561,440     $ (2,697,033)
                                   Proforma         $ 501,380     $ (3,053,501)

         Net income (loss) per     As reported      $    0.20     $      (0.98)
         common share - basic      Proforma         $    0.18     $      (1.11)

         Net income (loss) per     As reported      $    0.20     $      (0.98)
         common share - diluted    Proforma         $    0.18     $      (1.11)

         A summary of the status of the Company's two fixed stock option plans
as of December 31, 1999 and 1998, and changes during the years ending on those
dates is presented below:
<TABLE>
<CAPTION>
                                                DECEMBER 31, 1999                  DECEMBER 31, 1998
                                                -----------------                  -----------------
                                                                WEIGHTED-AVERAGE                  WEIGHTED-AVERAGE
                                                SHARES          EXERCISE PRICE     SHARES          EXERCISE PRICE
                                                ------------------------------------------------------------------
<S>                                              <C>               <C>             <C>               <C>
Outstanding at beginning of year                 612,600           $   3.40        493,958           $   4.00
Granted                                          112,400           $   1.41        200,450           $   1.69
Forfeited                                        (16,900)          $   1.31        (81,808)          $   2.77
                                                --------                          --------

Outstanding at end of year                       708,100           $   3.13        612,600           $   3.40
                                                =========                         ========

Options exercisable at year-end                  575,830           $   3.50        315,259           $   4.86
                                                =========                         ========

Weighted-average fair value of options
 granted during the year                        $   0.81                          $   1.30
                                                =========                         ========
</TABLE>

         The following table summarizes information about fixed stock options
outstanding at December 31, 1999.
<TABLE>
<CAPTION>
                   OPTIONS OUTSTANDING                   OPTIONS EXERCISABLE
                   ----------------------------------    ---------------------------------------------------
                   NUMBER            WEIGHTED-AVERAGE                        NUMBER
RANGE OF           OUTSTANDING       REMAINING           WEIGHTED-AVERAGE    EXERCISABLE    WEIGHTED-AVERAGE
EXERCISE PRICES    AT 12/31/99       CONTRACTUAL LIFE    EXERCISE PRICE      AT 12/31/99    EXERCISE PRICE
---------------    -----------       ----------------    ------------------- -----------    ----------------
<S>                 <C>              <C>                  <C>                 <C>             <C>
$ 1.00-2.99         640,600          7.7 years            $    1.83           508,330         $   1.91
$ 3.00-20.00         67,500          2.7 years            $   15.50            67,500         $  15.50
                    -------                                                   -------

$ 1.00-20.00        708,100          7.2 years            $    3.13           575,830         $   3.50
                    =======                                                   =======
</TABLE>

         (b) As of December 31, 1999 and 1998, respectively, the Company has
reserved an aggregate 1,203,600 and 933,100 shares of Common Stock for issuance
upon exercise of options and warrants.

         (c) The following reconciles the components of the earnings per share
computation:

                                      F-13
<PAGE>
                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,       1999                                       1998
------------------------------------------------------------------------------------------------------------------------------
                                       EARNINGS         SHARES         PER-SHARE  LOSS             SHARES         PER-SHARE
                                       (NUMERATOR)      (DENOMINATOR)  AMOUNT     (NUMERATOR)      (DENOMINATOR)  AMOUNT
------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>               <C>           <C>         <C>              <C>            <C>
Earnings (loss) per common share
Net income (loss)                      $   561,440       2,857,414     $   0.20    $(2,697,033)     2,749,432      $  (0.98)
                                                                                                                   =========
Effect of Dilutive Securities
Options                                         --           7,753                          --             --
Warrants                                        --             115                          --             --
                                       -----------       ---------                 ------------     ---------

Earnings (loss) per common share -
assuming dilution
Net income (loss)                      $   561,440       2,865,282     $   0.20    $(2,697,033)     2,749,432      $  (0.98)
                                       ===========       =========     ========    ============     =========      =========
</TABLE>

         Options to purchase 659,700 shares of common stock at exercise prices
ranging from $1.31 to $20.00 per share were not included in the computation of
earnings per share, assuming dilution, for 1999 because the options' exercise
prices were greater than the average market price of the common shares for that
year. 708,100 options, which expire through 2009, are still outstanding at
December 31, 1999. Warrants to purchase 465,500 shares of common stock at
exercise prices ranging from $1.31 to $4.35 per share were not included in the
computation of earnings per share, assuming dilution, for 1999 because the
warrants' exercise prices were greater than the average market price of the
common shares for that year. 495,500 warrants, which expire at various times
through 2003, are still outstanding at December 31, 1999. No options and
warrants are included in the calculation of diluted earnings per share for 1998,
as the effect would be anti-dilutive.

9.       SEGMENT INFORMATION

         The Company's reportable segments are strategic businesses that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies. FSDA, DMPC and
GFSI manufacture and distribute equipment in the industrial and municipal fluid
handling and filtration segment including, but not limited to, filter presses,
pressure leaf filters, tubular filters, metering pumps and sludge dewatering
systems. KISS and DTSI are manufacturers and distributors of commercial and
residential water filtration and purification equipment including, but not
limited to, water softeners, reverse osmosis systems and water filters. CWES
sells and services car wash equipment. The Company primarily evaluates the
operating performance of its segments based on the categories noted in the table
below. One customer of the industrial and municipal fluid handling and
filtration segment represented approximately $2,740,000, or 11.7%, of
consolidated total revenues for the year ended December 31, 1999. During 1999
and 1998, the Company had no intercompany sales.

                                      F-14
<PAGE>
                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         Financial information for the Company's business segments is as
follows:
<TABLE>
<CAPTION>
                                                                   FOR THE YEAR ENDED  FOR THE YEAR ENDED
                                                                   ------------------  ------------------
                                                                    DECEMBER 31, 1999   DECEMBER 31, 1998
                                                                    -----------------  ------------------
<S>                                                                    <C>                    <C>
REVENUES

Industrial and municipal fluid handling and filtration ..........      $ 15,064,462           $ 15,310,078
Commercial and residential water filtration and purification ....         4,905,877              6,395,257
Car wash equipment sales and service ............................         3,385,921              4,743,951
Corporate .......................................................                --                     --
                                                                       ------------           ------------

Total revenues ..................................................      $ 23,356,260           $ 26,449,286
                                                                       ============           ============

OPERATING INCOME (LOSS)

Industrial and municipal fluid handling and filtration ..........      $  1,123,896           $   (920,423)
Commercial and residential water filtration and purification ....           856,359               (329,324)
Car wash equipment sales and service ............................            44,397                505,902
Corporate .......................................................          (732,042)            (1,245,844)
                                                                       ------------           ------------

Total operating income (loss) ...................................      $  1,292,610           $ (1,989,689)
                                                                       ============           ============

DEPRECIATION AND AMORTIZATION

Industrial and municipal fluid handling and filtration ..........      $    263,230           $    291,156
Commercial and residential water filtration and purification ....           199,560                235,632
Car wash equipment sales and service ............................           129,000                128,820
Corporate .......................................................            50,000                 49,200
                                                                       ------------           ------------

Total depreciation and amortization .............................      $    641,790           $    704,808
                                                                       ============           ============

INTEREST EXPENSE, NET

Industrial and municipal fluid handling and filtration ..........      $    500,603           $    664,249
Commercial and residential water filtration and purification ....                --                     --
Car wash equipment sales and service ............................               875                 13,250
Corporate .......................................................           229,692                179,845
                                                                       ------------           ------------

Total interest expense, net .....................................      $    731,170           $    857,344
                                                                       ============           ============
</TABLE>

                                      F-15
<PAGE>
                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                                                   FOR THE YEAR ENDED     FOR THE YEAR ENDED
                                                                   ------------------     ------------------
                                                                    DECEMBER 31, 1999      DECEMBER 31, 1998
                                                                    -----------------      -----------------
<S>                                                                  <C>                    <C>
TOTAL ASSETS

Industrial and municipal fluid handling and filtration.............. $   8,340,869          $   8,286,697
Commercial and residential water filtration and purification........     2,682,059              2,857,433
Car wash equipment sales and service................................     1,733,505              2,032,714
Corporate...........................................................     1,460,912              1,390,604
                                                                     -------------          -------------

Total assets........................................................ $  14,217,345          $  14,567,448
                                                                     =============          =============

CAPITAL EXPENDITURES

Industrial and municipal fluid handling and filtration.............. $     508,365          $     287,320
Commercial and residential water filtration and purification........        53,190                 35,626
Car wash equipment sales and service................................        64,988                 33,614
Corporate...........................................................        37,461                 14,714
                                                                     -------------          -------------

Total capital expenditures.......................................... $     664,004          $     371,274
                                                                     =============          =============
</TABLE>

10.      FINANCING FEES

         The Company offers a retail financing program for the purpose of
assisting its subsidiaries' water purification customers (dealers) in obtaining
financing through an arrangement with an unrelated lending company. As
compensation for its services, the Company receives fees based on amounts
financed. The Company bears no credit risk, but could share in the risk
associated with dealer fraud, (See Note 13(d)). Net fees for the years ended
December 31, 1999 and 1998 aggregated approximately $757,000 and $852,000,
respectively, and are included in revenues.

11.      OTHER INCOME

         (a) On October 2, 1998, the Company sold substantially all of the net
assets of Midwest Water Technologies, Inc., ("MWTI"), retaining only the
accounts receivable. In connection with this sale, the Company realized $188,275
in cash which it in turn used to pay down certain outstanding debt. There was no
gain nor loss recognized on the sale of these assets.

         (b) On December 14, 1998, the Company sold substantially all of the net
assets of EnviroSystems Supply, Inc. In connection with this sale, the Company
realized $22,000 in cash, which it in turn used to pay down certain outstanding
debt, and a note, principal and interest receivable quarterly, in the amount of
$128,000 which bears interest at the rate of 11%. The Company realized a net
gain on this sale of net assets of $150,000.

12.      SUPPLEMENTAL CASH FLOW INFORMATION

         For the years ended December 31, 1999 and 1998, the Company paid
$607,069 and $741,581, respectively, for interest. Non-cash investing and
financing activities are as follows:

                                      F-16
<PAGE>

         During 1999 and 1998, in connection with consulting agreements and the
issuance of debt, the Company issued 230,000 warrants valued at $109,000 and
170,500 warrants valued at $78,000, respectively, which were valued using the
Black-Scholes pricing model.

13.      COMMITMENTS AND CONTINGENCIES

         (a) The Company leases vehicles and office/warehouse space under
operating leases which expire through 2002. Total rent expense aggregated
approximately $181,000 and $220,000, for the years ended December 31, 1999 and
1998, respectively.

         Approximate future annual minimum lease payments under operating leases
at December 31, 1999 are as follows:

                  2000                $  175,048
                  2001                   157,170
                  2002                    70,260
                                      ----------

                                      $  402,478
                                      ==========

         (b) The Company has entered into a distribution agreement with Ryko
Manufacturing Company ("Ryko"). Under the terms of the agreement, the Company is
the exclusive distributor of Ryko car wash equipment in the South Florida
region. The distribution agreement provides that the Company sells directly or
receives a commission on all Ryko equipment sold within its region. Pursuant to
the most recent extension issued by Ryko, the distribution agreement is due to
expire in November 2000.

         (c) In January 1994, the Company adopted a 401(k) employee savings and
retirement plan. Under the provisions of the Plan, the Company may elect to
match each employee's contribution to the Plan at the rate of 50% in Company
Common Stock. The Common Stock is restricted stock and vests over a two year
period on a quarterly basis. During 1999 and 1998, the Company contributed
99,193 and 96,592 shares of restricted Common Stock valued at $64,933 and
$62,788, respectively.

         (d) In 1998, the Company recorded a $270,000 provision for probable
losses related to a claim against a former Midwest Water Technologies, Inc.
customer (dealer) in conjunction with the financing program offered by the
Company through an unrelated lending company for the Company's dealers in the
residential water filtration and purification business, (See Note 10). During
1999, the claim noted above was resolved for $132,483, which was paid by the
Company to the unrelated lending company. The remaining $137,517 originally
reserved was recorded as a offset to operating expenses during 1999.

         (e) On April 9, 1997 Long Trail Brewing Company filed a complaint
against EnviroSystems Supply, Inc., a wholly owned subsidiary of the Company, in
Windsor Superior Court in the County of Windsor in the State of Vermont. The
complaint alleges, among other matters, breach of express warranty and specific
performance of certain of the parameters of the written agreement for the
purchase of a waste water treatment plant designed to treat the industrial waste
water generated at the Plaintiff's brewing facility. The Company's insurance
carrier is defending the claim under a reservation of rights. Management
believes, based on facts presently known, that if the outcome of such legal
proceedings is determined adverse to the Company, such determination could have
a material adverse effect on the Company's financial position, liquidity, or
future results of operations. The Company has reserved for the estimated
probable loss in connection with this matter.

                                      F-17
<PAGE>

         (f) The Company is or may become involved in various lawsuits, claims
and proceedings in the normal course of its business including those pertaining
to product liability, environmental, safety and health, and employment matters.
The Company records liabilities when loss amounts are determined to be probable
and reasonably estimatable. Insurance recoveries are recorded only when claims
for recovery are settled. Although generally the outcome of litigation cannot be
predicted with certainty and some lawsuits, claims or proceedings may be
disposed of unfavorably to the Company, management believes, based on facts
presently known, that the outcome of such legal proceedings and claims, other
than those previously disclosed, will not have a material adverse effect on the
Company's financial position, liquidity, or future results of operations.

14.      SUBSEQUENT EVENTS

         (a) In January 2000, certain employees of the Company were granted
options to purchase a total of 50,000 shares of Common Stock at $1.56 per share
(market value at the date of grant). The above options expire ten years from the
date of grant, and are exercisable one-third each year beginning one year from
the date of grant.

         (b) William K. Mackey, the Company's President, Chief Executive
Officer, Treasurer and Principal Accounting Officer resigned effective February
28, 2000. In accordance with such resignation, the Board of Directors agreed to
pay Mr. Mackey $480,000 in equal installments of $40,000 per month beginning
April 1, 2000, and extend all his options to purchase the Company's Common Stock
through December 31, 2000. All costs related to this event will be expensed in
2000.

                                      F-18
<PAGE>

                                  EXHIBIT INDEX

EXHIBIT            DESCRIPTION
-------            -----------

  10.5     Amended and Restated Loan and Security Agreement between ACS
           Acquisition Corp. and Guaranty Business Credit Corporation, d/b/a
           Fidelity Funding, dated March 14, 2000.

  21.1     Subsidiaries of the Registrant.

  27.1     Financial Data Schedule.