U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                   Form 10-QSB

(Mark One)
[X]      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended       March 31, 2001
                                                 --------------------------

[ ]      TRANSITION REPORT UNDER SECTION 13 OR (15d) OF THE EXCHANGE ACT
                  For the transition period from ____________ to ____________


                         Commission File Number 0-22434

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

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

                11820 N.W. 37th Street, Coral Springs, FL 33065
                -----------------------------------------------
                    (Address of principal executive offices)

                                 (954) 796-3338
                             ----------------------
                           (Issuer's telephone number)

         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
                                    -----         -----

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

                                              Number of Shares Outstanding
                                                     On May 14, 2001
                                                  ---------------------
            Class
            -----

Common Stock,  $ .001 Par Value                        2,994,879
                                                       ---------

         Transitional small business disclosure format:

                               Yes            No    X
                                    -----         -----
<PAGE>

                             AQUA CARE SYSTEMS, INC.

                                 INDEX TO 10-QSB

PART I.  FINANCIAL INFORMATION

          ITEM 1.  Condensed Consolidated Balance Sheets as of March 31, 2001,
                   (unaudited), and December 31, 2000

                   Condensed Consolidated Statements of
                   Operations for the three months ended March
                   31, 2001, (unaudited), and March 31, 2000,
                   (unaudited)

                   Condensed Consolidated Statements of Cash
                   Flows for the three months ended March 31,
                   2001, (unaudited), and March 31, 2000,
                   (unaudited)

                   Notes to Condensed Consolidated Financial Statements

          ITEM 2.  Management's Discussion and Analysis of
                   Financial Condition and Results of
                   Operations for the three months ended March
                   31, 2001, (unaudited), and March 31, 2000,
                   (unaudited)

PART II. OTHER INFORMATION

          ITEM 1.  Legal Proceedings

                                        2
<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1.           Financial Statements

                  The interim condensed consolidated financial statements
                  presented in this report are unaudited, but in the opinion of
                  management, reflect all adjustments necessary for a fair
                  presentation of such information. Results for interim periods
                  should not be considered indicative of results for a full
                  year.

                  These condensed consolidated financial statements should be
                  read in conjunction with the financial statements and notes
                  thereto included in the Form 10-KSB for the fiscal year ended
                  December 31, 2000, filed with the Securities and Exchange
                  Commission on March 28, 2001.

                                        3
<PAGE>

                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
                      Condensed Consolidated Balance Sheets
                   (Unaudited with respect to March 31, 2001)

<TABLE>
<CAPTION>
                                                                                    March 31,     December 31,
                                                                                      2001            2000
                                                                                  ------------    -------------
<S>                                                                               <C>             <C>
Assets
Current assets
     Cash and cash equivalents................................................    $  1,518,621    $  2,985,579
     Accounts receivable, net of allowance for doubtful accounts of
         $70,000 and $100,000, in 2001 and 2000, respectively .................      1,616,984       1,516,150
     Inventory, net ...........................................................        881,526         680,017
     Prepaids and other .......................................................        183,026         147,575
                                                                                  ------------    ------------
Total current assets ..........................................................      4,200,157       5,329,321

Property, plant and equipment, net ............................................      3,651,617       3,683,580
Intangible assets, net ........................................................      1,392,882       1,433,176
Other assets ..................................................................        117,486         125,515
                                                                                  ------------    ------------
Total assets..................................................................    $  9,362,142    $ 10,571,592
                                                                                  ============    ============
Liabilities
Current liabilities
     Accounts payable.........................................................    $  1,849,878    $  1,725,140
     Accrued expenses .........................................................        604,751         483,611
     Current maturities of long-term debt .....................................        666,080         928,604
     Liabilities of discontinued operations ...................................         97,676         899,823
                                                                                  ------------    ------------
Total current liabilities .....................................................      3,218,385       4,037,178

Long-term debt, less current maturities .......................................      1,185,945       1,218,707
                                                                                  ------------    ------------
Total liabilities .............................................................      4,404,330       5,255,885
                                                                                  ------------    ------------
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, 2,994,879 and 2,971,238 shares issued
         and outstanding, in 2001 and 2000, respectively ......................          2,995           2,971
     Additional paid-in capital ...............................................     17,212,373      17,185,803
     Deficit ..................................................................    (12,257,556)    (11,873,067)
                                                                                  ------------    ------------
Total stockholders' equity ....................................................      4,957,812       5,315,707
                                                                                  ------------    ------------
Total liabilities and stockholders' equity....................................    $  9,362,142    $ 10,571,592
                                                                                  ============    ============
</TABLE>

   See accompanying notes to the condensed consolidated financial statements.

                                        4
<PAGE>

                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
                 Condensed Consolidated Statements of Operations
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                 For the three months ended
                                                                         March 31,
                                                                    2001           2000
                                                                 ----------     ----------
<S>                                                              <C>            <C>
Revenues....................................................     $3,377,963     $3,390,453

Cost of revenues ............................................     1,978,440      1,953,521
                                                                 ----------     ----------
Gross profit ................................................     1,399,523      1,436,932
                                                                 ----------     ----------
Operating expenses:
     Selling, general and administrative ....................     1,433,994      1,216,371
     Severance expense ......................................       450,000        480,000
     Depreciation and amortization ..........................       100,294        116,391
                                                                 ----------     ----------
Total operating expenses ....................................     1,984,288      1,812,762
                                                                 ----------     ----------
Loss from operations ........................................      (584,765)      (375,830)

Interest expense, net .......................................       (43,059)      (138,533)
                                                                 ----------     ----------
Loss from continuing operations .............................      (627,824)      (514,363)

Income from discontinued operations .........................          --          191,970

Extraordinary item, gain on extinguishment of debt ..........       243,335           --
                                                                 ----------     ----------
Net loss....................................................     $ (384,489)    $ (322,393)
                                                                 ==========     ==========
Loss per share from continuing operations,
  basic and diluted.........................................     $    (0.21)    $    (0.18)

Income per share from discontinued operations,
  basic and diluted .........................................            --           0.07

Income per share from extraordinary item,
  basic and diluted .........................................          0.08             --
                                                                 ----------     ----------
Net loss per share,
  basic and diluted.........................................     $    (0.13)    $    (0.11)
                                                                 ==========     ==========
Weighted average number of outstanding shares
  of Common Stock, basic and diluted ........................     2,973,278      2,899,638
                                                                 ==========     ==========
</TABLE>

   See accompanying notes to the condensed consolidated financial statements.

                                        5
<PAGE>

                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                              For the three months ended
                                                                        March 31,
                                                                   2001          2000
                                                              -----------    -----------
<S>                                                           <C>            <C>
Operating Activities:
Net loss .................................................... $  (384,489)   $  (322,393)
Adjustments to reconcile net loss to
  net cash (used in) provided by operating activities:
     Gain on extinguishment of debt .........................    (243,335)            --
     Provision for doubtful accounts ........................     (30,000)            --
     Depreciation and amortization ..........................     100,294        116,391
     Pension contribution paid through issuance of
        Common Stock ........................................      14,069         12,399
Changes in assets and liabilities:
     (Increase) decrease in accounts receivable .............     (70,834)       765,476
     (Increase) decrease in inventory .......................    (201,509)       154,578
     (Increase) decrease in prepaids and other ..............     (35,451)        36,146
     Decrease in other assets ...............................       8,029         15,203
     Increase in accounts payable and accrued expenses.......     364,213        240,672
     Net effect of discontinued operations ..................    (802,147)      (153,259)
                                                              -----------    -----------
Net cash (used in) provided by operating activities .........  (1,281,160)       865,213
                                                              -----------    -----------
Investing Activities:
     Capital expenditures ...................................     (28,037)       (36,432)
                                                              -----------    -----------
Net cash used in investing activities .......................     (28,037)       (36,432)
                                                              -----------    -----------
Financing Activities:
     Proceeds from issuance of notes payable and
        long-term debt ......................................   2,607,352      3,954,271
     Repayment of notes payable and
        long-term debt ......................................  (2,777,638)    (4,955,171)
     Proceeds from exercise of stock options ................      12,525             --
                                                              -----------    -----------
Net cash used in financing activities .......................    (157,761)    (1,000,900)
                                                              -----------    -----------
Net decrease in cash and cash equivalents ...................  (1,466,958)      (172,119)

Cash and cash equivalents, beginning of period ..............   2,985,579        460,964
                                                              -----------    -----------
Cash and cash equivalents, end of period .................... $ 1,518,621    $   288,845
                                                              ===========    ===========
</TABLE>

   See accompanying notes to the condensed consolidated financial statements.

                                        6
<PAGE>

                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
               (Unaudited with respect to March 31, 2001 and 2000)

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 fluid handling and filtration systems and products
and water filtration and purification products. Currently, it provides equipment
sales and service for clients in the United States and abroad. Active
subsidiaries include Filtration and Separation Dynamics, (f/k/a the Filtration
Systems Division of Aqua Care Systems, Inc.), ("FSDA"), KISS International,
Inc., ("KISS"), and Di-tech Systems, Inc., ("DTSI").

         Basis of Presentation

         The accompanying unaudited condensed consolidated financial statements
as of March 31, 2001 and for the three months ended March 31, 2001 and 2000 have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and Item
310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, (consisting of normal recurring accruals), considered necessary for
a fair presentation have been included. Operating results for the three month
periods ended March 31, 2001 and 2000, are not necessarily indicative of the
results that may be expected for the years ending December 31, 2001 and 2000.
The condensed consolidated balance sheet information as of December 31, 2000 was
derived from the audited consolidated financial statements included in the
Company's Form 10-KSB. For further information, refer to the condensed
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2000.
Certain 2000 amounts have been reclassified to conform to the 2001 presentation.

         Principles of Consolidation

         The accompanying condensed 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 5 to 30 years.

                                        7
<PAGE>

                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
               (Unaudited with respect to March 31, 2001 and 2000)

         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.

         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

         Cash equivalents, accounts receivable, notes receivable, accounts
payable and accrued expenses are reflected in the consolidated balance sheets at
their respective carrying values, which approximate fair values due to the
short-term nature of these instruments. The Company's debt, as reflected in the
consolidated balance sheets, approximates its estimated fair value because such
debt has variable rates of interest. 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.

                                        8
<PAGE>

                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
               (Unaudited with respect to March 31, 2001 and 2000)

         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 three months ended March
31, 2001 and 2000, were approximately $22,000 and $17,000, respectively.

2.       Inventory

<TABLE>
<CAPTION>
                                                                  March 31, 2001    December 31, 2000
                                                                   -----------         -----------
<S>                                                                <C>                 <C>
Materials and purchased parts ................................     $   593,905         $   533,852
Work in process ..............................................         287,621             146,165
                                                                   -----------         -----------
Total inventory ..............................................     $   881,526         $   680,017
                                                                   ===========         ===========
</TABLE>

3.       Property, Plant and Equipment

<TABLE>
<CAPTION>
                                                                  March 31, 2001    December 31, 2000
                                                                   -----------         -----------
<S>                                                                <C>                 <C>
Land and buildings ...........................................     $ 2,000,000         $ 2,000,000
Machinery and equipment ......................................       2,312,753           2,284,716
Furniture and fixtures .......................................         577,087             577,087
Leasehold improvements .......................................          34,125              34,125
                                                                   -----------         -----------
                                                                     4,923,965           4,895,928
Less accumulated depreciation ................................      (1,272,348)         (1,212,348)
                                                                   -----------         -----------
Net property, plant and equipment ............................     $ 3,651,617         $ 3,683,580
                                                                   ===========         ===========
</TABLE>

4.       Intangible Assets

<TABLE>
<CAPTION>
                                                                  March 31, 2001    December 31, 2000
                                                                   -----------         -----------
<S>                                                                <C>                 <C>
Goodwill .....................................................     $ 2,417,831         $ 2,417,831

Less accumulated amortization ................................      (1,024,949)           (984,655)
                                                                   -----------         -----------
Net intangible assets ........................................     $ 1,392,882         $ 1,433,176
                                                                   ===========         ===========
</TABLE>

                                        9
<PAGE>

                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
               (Unaudited with respect to March 31, 2001 and 2000)

5.       Long-Term Debt

<TABLE>
<CAPTION>
                                                                                                 March 31, 2001   December 31, 2000
                                                                                                   -----------       -----------
<S>                                                                                                <C>               <C>
Prime plus 1.25%, (9.25% at March 31, 2001), revolving credit lines, providing
for borrowings, subject to certain collateral requirements and loan covenants,
of up to $3,500,000 through June 2005, principally collateralized by accounts
receivable and inventory of FSDA .............................................................     $   535,033       $   672,557

Prime plus 1.25%, (9.25% at March 31, 2001), note payable, principal and
interest payable monthly with an estimated balloon payment of approximately
$700,000 due June 2005, principally collateralized by land and buildings
of FSDA ......................................................................................         984,667         1,002,250

Prime plus 1.25%, (9.25% at March 31, 2001), note payable, principal and
interest payable monthly with an estimated balloon payment of approximately
$100,000 due June 2005, principally collateralized by machinery and equipment
of FSDA ......................................................................................         332,325           347,504

10% unsecured notes, extinguished in 2001, (see (a) below) ...................................              --           125,000
                                                                                                   -----------       -----------
                                                                                                     1,852,025         2,147,311

Less current maturities ......................................................................        (666,080)         (928,604)
                                                                                                   -----------       -----------
Total long-term debt .........................................................................     $ 1,185,945       $ 1,218,707
                                                                                                   ===========       ===========
</TABLE>

At March 31, 2001, scheduled maturities of long-term debt, are:

                           2002             $  666,080
                           2003                131,047
                           2004                131,047
                           2005                131,047
                           2006                792,804
                                            ----------
                                            $1,852,025
                                            ==========

         (a) In March 2001, the Company recorded an extraordinary item for a
gain on the extinguishment of debt, wherein certain unsecured notes payable and
accrued interest relating thereto, aggregating $243,335, were extinguished.

                                       10
<PAGE>

                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
               (Unaudited with respect to March 31, 2001 and 2000)

         (b) The Company's loan agreements contain restrictive covenants which
require the Company to, among other things, maintain a minimum tangible net
worth, maintain certain financial ratios and restrict dividend payments from
subsidiaries. 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.       Income Taxes

         At March 31, 2001 and December 31, 2000, the Company has approximately
$8,800,000 and $8,500,000, respectively, of net operating loss carryforwards
expiring through 2019, 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
$5,368,000 of the Company's net operating losses for tax purposes. Further
limitation may be imposed as a result of transactions subsequent to 1995,
including the 2001 tender offer, (see Note 13). The amount of such further
limitation, if any, has not yet been determined. Realization of the approximate
$3,100,000 and $3,000,000 net deferred tax assets at March 31, 2001 and December
31, 2000, 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.

7.       Equity Transactions

         (a) At March 31, 2001, 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. Each director is granted
options to purchase 5,000 shares of Common Stock on the last business day of
each year. 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.

         (b) As of March 31, 2001 and December 31, 2000, respectively, the
Company has reserved an aggregate 774,600 and 769,600 shares of Common Stock for
issuance upon exercise of options and warrants. No options and warrants are
included in the calculation of earnings per share for the three months ended
March 31, 2001 and 2000, as the effect would be anti-dilutive.

8.       Discontinued Operations

         (a) Effective May 1, 2000, the Company sold the net assets of Car Wash
Equipment & Supply, Ryko of South Florida, Inc., ("CWES"), the sole entity in
the Company's car wash equipment sales and service segment, for $1,350,000 in
cash, the book value of the net assets as of May 1, 2000. In connection with
this sale, the Company sold its land and building in Coral Springs, Florida for
$650,000 in cash, the net book value of such assets as of May 1, 2000.

         (b) During the fourth quarter of 2000, the Company sold the assets of
DuraMeter Pump Company, Inc., ("DMPC"), for $3,750,000 in cash and prospective
earnout payments aggregating $1,000,000, based upon the achievement of certain
net sales levels of DMPC products by the Purchaser over the next two years. The
Purchaser also assumed certain of the liabilities of DMPC. The Company
recognized a gain on the above noted sale of net assets of $1,357,643.

                                       11
<PAGE>

                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
               (Unaudited with respect to March 31, 2001 and 2000)

         Balance sheet and statement of operations highlights of such
discontinued operations are as follows:

<TABLE>
<CAPTION>
                                                                     March 31,                      December 31,
                                                 CWES       DMPC       2001       CWES       DMPC       2000
                                               --------   --------   --------   --------   --------  ---------
<S>                                            <C>        <C>        <C>        <C>        <C>        <C>
Accounts payable and accrued liabilities       $     --   $ 97,676   $ 97,676   $     --   $899,823   $899,823
                                               --------   --------   --------   --------   --------   --------
Liabilities of discontinued operations         $     --   $ 97,676   $ 97,676   $     --   $899,823   $899,823
                                               ========   ========   ========   ========   ========   ========
<CAPTION>
                                                                       For the three
                                                                        months ended
                                                                          March 31,
                                                  CWES         DMPC         2000
                                               ----------   ----------   ----------
<S>                                            <C>          <C>          <C>
Revenues                                       $  925,186   $  952,928   $1,878,114
Expenses                                          863,008      823,136    1,686,144
                                               ----------   ----------   ----------
Income from discontinued operations            $   62,178   $  129,792   $  191,970
                                               ==========   ==========   ==========
</TABLE>

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
manufactures and distributes equipment in the industrial and municipal fluid
handling and filtration segment including, but not limited to, filter presses,
pressure leaf filters and tubular filters. 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. The Company primarily evaluates the operating
performance of its segments based on the categories noted in the table below.
During 2001 and 2000, the Company had no intercompany sales. Financial
information for the Company's business segments is as follows:

<TABLE>
<CAPTION>
                                                             For the three months ended   For the three months ended
                                                             --------------------------   --------------------------
                                                                     March 31, 2001         March 31, 2000
                                                                     --------------         --------------
<S>                                                                   <C>                     <C>
Revenues
Industrial and municipal fluid handling and filtration .......        $ 2,459,783             $ 2,416,801
Commercial and residential water filtration and purification..            918,180                 973,652
                                                                      -----------             -----------
Total revenues ...............................................        $ 3,377,963             $ 3,390,453
                                                                      ===========             ===========
Operating income (loss)
Industrial and municipal fluid handling and filtration .......        $    76,195             $   169,966
Commercial and residential water filtration and purification..            124,165                 162,074
Corporate ....................................................           (785,125)               (707,870)
                                                                      -----------             -----------
Total operating loss .........................................        $  (584,765)            $  (375,830)
                                                                      ===========             ===========
</TABLE>

                                       12
<PAGE>

                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
               (Unaudited with respect to March 31, 2001 and 2000)


<TABLE>
<CAPTION>
                                                                   For the three months ended   For the three months ended
                                                                   --------------------------   --------------------------
                                                                         March 31, 2001               March 31, 2000
                                                                         --------------               --------------
<S>                                                                        <C>                     <C>
Depreciation and amortization
Industrial and municipal fluid handling and filtration.............        $   50,404              $    54,000
Commercial and residential water filtration and purification ......            49,890                   49,890
Corporate .........................................................                --                   12,501
                                                                         ------------             ------------
Total depreciation and amortization................................        $  100,294              $   116,391
                                                                         ============             ============
Interest expense, net
Industrial and municipal fluid handling and filtration.............        $  (63,823)             $   (67,426)
Corporate .........................................................            20,764                  (71,107)
                                                                         ------------             ------------
Total interest expense, net........................................        $  (43,059)             $  (138,533)
                                                                         ============             ============
Capital expenditures
Industrial and municipal fluid handling and filtration.............        $   22,726              $    33,464
Commercial and residential water filtration and purification ......             5,311                    2,830
Corporate .........................................................                --                      138
                                                                         ------------             ------------
Total capital expenditures.........................................        $   28,037              $    36,432
                                                                         ============             ============
<CAPTION>
                                                                        March 31, 2001           December 31, 2000
                                                                        --------------           -----------------
<S>                                                                        <C>                     <C>
Total assets
Industrial and municipal fluid handling and filtration.............        $5,525,778              $ 5,334,030
Commercial and residential water filtration and purification ......         2,238,248                2,176,616
Corporate .........................................................         1,598,116                3,060,946
                                                                         ------------             ------------
Total assets.......................................................        $9,362,142              $10,571,592
                                                                         ============             ============
</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. Net fees for the three months ended March 31, 2001
and 2000 aggregated approximately $158,000 and $162,000, respectively, and are
included in revenues. The Company has been informally notified that the lending
company intends to discontinue offering the finance program effective September
2001. As such, the Company is in the process of locating a new financing entity.
The inability of the Company to find a lending institution willing to offer such
a finance program could have a material adverse effect on the Company's
financial condition and operating results.

                                       13
<PAGE>

                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
               (Unaudited with respect to March 31, 2001 and 2000)


11.      Supplemental Cash Flow Information

         For the three months ended March 31, 2001 and 2000, the Company paid
$56,757 and $148,314, respectively, for interest.

12.      Commitments and Contingencies

         (a) The Company leases office/warehouse space and office equipment
under operating leases which expire through 2004. Total rent expense aggregated
approximately $42,000 and $43,000, for the three months ended March 31, 2001 and
2000, respectively.

         (b) In January 1994, the Company adopted a 401(k) employee savings and
retirement plan. Under the provisions of the savings and retirement 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 the three months ended March
31, 2001 and 2000, the Company contributed 13,641 and 12,023 shares of
restricted Common Stock valued at $14,069 and $12,399, respectively.

         (c) William K. Mackey, the Company's President, Chief Executive
Officer, Treasurer and Principal Accounting Officer resigned from all positions
held with the Company 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 of his
options to purchase the Company's Common Stock through December 31, 2000, at
which time the options expired. The $480,000 cost related to this event was
charged to operations in the first quarter of 2000.

         (d) In March 2001, Norman J. Hoskin, the Company's President, Chief
Executive Officer, Treasurer and Secretary, and George J. Overmeyer, the
Company's Vice President of Finance and Principal Accounting Officer, resigned
from all positions held with the Company effective April 28, 2001. In accordance
with such resignations, the Board of Directors agreed to pay Messrs. Hoskin and
Overmeyer $250,000 and $200,000, respectively. The $450,000 cost related to this
event was charged to operations in the first quarter of 2001 and paid in full in
April 2001. Subsequent to the resignation of Mr. Overmeyer as noted above, the
Company and Mr. Overmeyer agreed to extend Mr. Overmeyer's employment, in the
same capacities as prior to such resignation, through May 25, 2001.

         (e) 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 will not
have a material adverse effect on the Company's financial position, liquidity or
future results of operations.

                                       14
<PAGE>

                    AQUA CARE SYSTEMS, INC. AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
               (Unaudited with respect to March 31, 2001 and 2000)

13.      Tender Offer

         On February 22, 2001, AV, Inc., a Delaware corporation, commenced a
tender offer to purchase up to 900,000 shares of the outstanding Common Stock of
the Company for $2.25 per share in cash. On March 8, 2001, the Company's Board
of Directors voted to recommend that Aqua Care shareholders accept a modified
offer by AV, Inc. to purchase up to 1,050,000 shares of the Company's Common
Stock for $2.25 per share in cash. On March 28, 2001, the tender offer expired
with shareholders tendering 1,614,923 shares of the Company's Common Stock. As
such, AV, Inc. purchased 1,050,000 of the tendered shares, on a pro-rata basis,
for $2.25 per share in cash. As a result of the tender offer and in accordance
with the 1991 Performance Equity Plan, (see Note 7), all of the Plan's
outstanding options to purchase Common Stock became immediately vested.
Immediately subsequent to such purchase, AV, Inc. owned approximately 40% of the
Company's issued and outstanding Common Stock.

14.      Subsequent Events

         (a) On April 11, 2001, Norman J. Hoskin, James P. Cefaratti and David
K. Lucas, resigned from the Company's Board of Directors. In accordance with
their resignations from the Board of Directors and the termination of their
consulting agreements, Messrs. Cefaratti and Lucas were paid $22,500 and
$23,500, respectively. Simultaneously with such resignations, H. Martin Jessen,
Walter Neubauer and Aref Cheval were appointed to the Company's Board of
Directors.

         (b) On April 11, 2001, the Company entered into a three-year employment
agreement with the Company's President and Chief Executive Officer, H. Martin
Jessen. The Agreement provides for annual base salaries of $200,000, $250,000
and $300,000 per annum for the yearly periods beginning April 12, 2001, April 9,
2002 and April 9, 2003, respectively, plus bonuses, if any, as determined by the
Company's Board of Directors. In connection with such Agreement, the Company
granted Mr. Jessen 300,000 options to purchase Common Stock at $2.25 per share.
The above options expire ten years from the date of grant, and are exercisable
one-third as of April 12, 2001, one-third one year from the date of grant and
one-third on the last day of the initial term of the employment agreement. The
employment agreements contain provisions for severance payments in the event of
a change of control of the Company, material default by the Company, termination
of such Officer without cause and resignation by the Officer.

                                       15
<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

         The following discussion and analysis should be read in conjunction
with the Company's condensed consolidated financial statements and notes thereto
appearing elsewhere in this Quarterly Report on Form 10-QSB, as well as, the
Company's "Management's Discussion and Analysis or Plan of Operation" contained
in Item 6 of the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2000.

Results of Operations - Three months ended March 31, 2001 and 2000

         Presented below are the condensed consolidated results of operations
for the Company for the three months ended March 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                       Three months ended   Three months ended
                                                         March 31, 2001       March 31, 2000
                                                         --------------       --------------
<S>                                                       <C>                   <C>
Revenues                                                  $3,377,963            $3,390,453
Cost of revenues                                           1,978,440             1,953,521
                                                          ----------            -----------
Gross profit                                               1,399,523             1,436,932
Operating expenses                                         1,984,288             1,812,762
                                                          ----------            ----------
Loss from operations                                        (584,765)             (375,830)
Interest expense, net                                        (43,059)             (138,533)
                                                          ----------            ----------
Loss from continuing operations                             (627,824)             (514,363)
Income from discontinued operations                               --               191,970
Extraordinary item, gain on extinguishment of debt           243,335                    --
                                                          ----------            ----------
Net loss                                                  $ (384,489)           $ (322,393)
                                                          ==========            ==========
Loss per share from continuing operations                 $    (0.21)           $    (0.18)
Income per share from discontinued operations                     --                  0.07
Income per share from extraordinary item                        0.08                    --
                                                          ----------            ----------
Net loss per share                                        $    (0.13)           $    (0.11)
                                                          ==========            ==========
</TABLE>

         Revenues decreased by $12,490, or 0.4%, from $3,390,453 for the three
months ended March 31, 2000, to $3,377,963 for the three months ended March 31,
2001. Of this decrease, $55,472 was due primarily to a reduction in sales of
water filtration and purification equipment and financing fees as a result of a
decrease in dealers' sales to end users mainly because of a slow down in
consumer spending; offset by a $42,982 increase in revenues recognized by the
industrial and municipal fluid handling and filtration segment due to a minor
increase in project volume from the first quarter of 2000 to

                                       16

<PAGE>

the first quarter of 2001.

          Cost of revenues increased by $24,919, or 1.3%, from $1,953,521 for
the three months ended March 31, 2000, to $1,978,440 for the three months ended
March 31, 2001. As a percentage of revenues, these amounts represented 57.6% for
2000 as compared to 58.6% for 2001. Cost of revenues as a percentage of revenues
for the industrial and municipal fluid handling and filtration and commercial
and residential water filtration and purification segments were 56.6% and 60.2%,
respectively, for the three months ended March 31, 2000. Cost of revenues as a
percentage of revenues of such segments for the three months ended March 31,
2001 were 57.2% and 62.2%, respectively.

          Gross profit decreased $37,409, or 2.6%, from $1,436,932 for the three
months ended March 31, 2000 to $1,399,523 for the three months ended March 31,
2001, which, as a percentage of revenues, represented a decrease from 42.4% to
41.4%, respectively, for such periods. Gross profit as a percentage of revenues
for the industrial and municipal fluid handling and filtration and commercial
and residential water filtration and purification segments were 43.4% and 39.8%,
respectively, for the three months ended March 31, 2000. Gross profit as a
percentage of revenues of such segments for the three months ended March 31,
2001 were 42.8% and 37.8%, respectively.

          The Company's operating expenses increased by $171,526, or 9.5%, from
$1,812,762 for the three months ended March 31, 2000, to $1,984,288 for the
three months ended March 31, 2001. As a percentage of revenues, these expenses
increased from 53.5% for 2000 to 58.7% for 2001. Severance expenses aggregating
$480,000 and $450,000 for the three months ended March 31, 2000 and 2001,
respectively, are included in operating expenses. As a percentage of revenues,
these amounts represented 14.2% and 13.3% for the three months ended March 31,
2000 and 2001, respectively. The $171,526 increase in operating expenses was
primarily due to an increase in investor relations expenses in connection with
the tender offer consummated March 28, 2001 ($103,190), an increase in contract
labor and consulting fees ($45,894), an increase in payroll and related expenses
($38,238) and an increase in utilities, due to a sharp increase in natural gas
costs ($26,246); partially offset by a reduction in the allowance for doubtful
accounts due to the collection of accounts receivable during the first quarter
of 2001, for which specific reserves were recorded in previous periods
($30,000). 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 $95,474, or 68.9%, from $138,533 for
the three months ended March 31, 2000 to $43,059 for the three months ended
March 31, 2001. This decrease was mainly attributable to the repayment of ACSI's
12% note payable and the write-off of deferred loan costs related thereto in
December 2000 ($70,637) and interest income ($18,109).

          Including the net income from discontinued operations of $191,970 for
the three months ended March 31, 2000, and the gain on extinguishment of debt of
$243,335 for the three months ended March 31, 2001, the Company incurred a net
loss of $(322,393) and $(384,489) for the three months ended March 31, 2000 and
2001, respectively.

Financial Condition and Liquidity

          At March 31, 2001, the Company had $1,518,621 of cash and cash
equivalents, working capital of $981,772, total assets of $9,362,142, long-term
debt, net of current maturities, of $1,185,945 and

                                       17
<PAGE>

stockholders' equity of $4,957,812. During the three months ended March 31,
2001, the Company's operating activities used $1,281,160 of cash, as a result of
the net effect of discontinued operations ($802,147), the net loss ($384,489),
the gain on extinguishment of debt ($243,335), an increase in inventory
($201,509), an increase in accounts receivable ($70,834), an increase in
prepaids and other ($35,451) and a reduction in the allowance for doubtful
accounts ($30,000); offset by an increase in accounts payable and accrued
expenses ($364,213), depreciation and amortization ($100,294), the pension
contribution paid through the issuance of Common Stock ($14,069) and a decrease
in other assets ($8,029). Investing activities used $28,037 due to capital
expenditures. Financing activities used $157,761 of cash, due to repayments of
notes payable and long-term debt ($2,777,638); offset by the net proceeds from
issuance of notes payable and long-term debt ($2,607,352) and proceeds from
exercise of stock options ($12,525).

          Management expects 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 $666,000 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. There can
be no assurance that any acquisitions will be consummated during 2001 or at all.

          The Company believes that its available cash, cash flow from
operations and availability under its lines of credit will be sufficient to fund
its operations and its purchases of machinery and equipment for the next twelve
months.

          A portion of the revenues of the Company, particularly through FSDA,
have been, and are expected to continue to be, generated from foreign countries.
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 three months ended March 31, 2001, the Company spent
$28,037 on capital expenditures mainly relating to the upgrade of existing
computer systems implemented by FSDA. During 2001, 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.

                                       18
<PAGE>

Tender Offer

         On February 22, 2001, AV, Inc., a Delaware corporation, commenced a
tender offer to purchase up to 900,000 shares of the outstanding Common Stock of
the Company for $2.25 per share in cash. On March 8, 2001, the Company's Board
of Directors voted to recommend that Aqua Care shareholders accept a modified
offer by AV, Inc. to purchase up to 1,050,000 shares of the Company's Common
Stock for $2.25 per share in cash. On March 28, 2001, the tender offer expired
with shareholders tendering 1,614,923 shares of the Company's Common Stock. As
such, AV, Inc. purchased 1,050,000 of the tendered shares, on a pro-rata basis,
for $2.25 per share in cash. As a result of the tender offer and in accordance
with the 1991 Performance Equity Plan, all of the Plan's outstanding options to
purchase Common Stock became immediately vested. Immediately subsequent to such
purchase, AV, Inc. owned approximately 40% of the Company's issued and
outstanding Common Stock.

Forward Looking Statements

          This Form 10-QSB 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.

                                       19
<PAGE>

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

         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
         will not have a material adverse effect on the Company's financial
         position, liquidity or future results of operations.

         No other Items of Part II are applicable to the Registrant for the
         period covered by this Quarterly Report on Form 10-QSB.

                                       20

<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 authorized.

                                           AQUA CARE SYSTEMS, INC.
                                           Registrant

Dated:  May 14, 2001                       /s/ H. Martin Jessen
                                           -------------------------------------
                                           H. Martin Jessen
                                           President and Chief Executive Officer



Dated:  May 14, 2001                       /s/ George J. Overmeyer
                                           -------------------------------------
                                           George J. Overmeyer
                                           Vice President of Finance and
                                           Principal Accounting Officer

                                       21