UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            -------------------------
                                   FORM 10-KSB

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

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

                                       OR

[     ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2002

                         Commission file number 0-22291

                     Commodore Separation Technologies, Inc.
             (Exact Name of Registrant as Specified in Its Charter)

      Delaware                                                   11-3299195
      (State or Other Jurisdiction of                         (I.R.S. Employer
      Incorporation or Organization)                         Identification No.)

      150 East 58th Street, Suite 3238
      New York, New York                                            10155
      (Address of Principal Executive Offices)                    (Zip Code)

Registrant's telephone number, including area code: (212) 308-5800

Securities registered pursuant to Section 12(b) of the Act: Not Applicable

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

                               Title of Each Class
                               -------------------
                    Common Stock, par value $0.001 per share
          10% Senior Convertible Redeemable Preferred Stock, par value
                                $0.001 per share
                    Redeemable Common Stock Purchase Warrants

         Indicate  by check  mark  whether  the  registrant:  (1) has  filed all
reports  required to be filed by Section 13 or 15(d) of the Securities  Exchange
Act of 1934 during the preceding 12 months (or for such shorter  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 __

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

         Non-affiliates  of the  registrant  held  shares of Common  Stock as of
February 28, 2003 with an aggregate market value of approximately $16,000 (based
upon the average bid and asked  prices of the Common  Stock on February 28, 2003
as quoted by the Nasdaq Small Cap Market).

         As of February 28, 2003,  11,732,640 shares of the registrant's  Common
Stock were outstanding.

                       ----------------------------------

                       DOCUMENTS INCORPORATED BY REFERENCE

<PAGE>

                                     PART I
                                     ------

ITEM 1.  BUSINESS.
         ---------

GENERAL

         Commodore  Separation  Technologies,  Inc., a Delaware corporation (the
"Company"), has developed its separation technology and recovery system known as
SLiM(TM)  (supported  liquid  membrane).  Based on its  historical  research and
development  program,  the Company  believes  that SLiM can separate and recover
solubilized metals, radionuclides, biochemicals and other targeted elements from
aqueous and  possibly  gaseous  waste  streams in degrees of  concentration  and
purity  which  permit  both the reuse of such  elements  and the ability for the
waste  water or gas to be disposed of as  non-toxic  effluent  with little or no
further  treatment.  SLiM utilizes a process  whereby a contaminated  aqueous or
gaseous  feedstream  is  introduced  into a  fibrous  membrane  unit  or  module
containing  a  proprietary  chemical  solution,  the  composition  of  which  is
customized  depending  on the  types  and  concentrations  of  compounds  in the
feedstream. As the feedstream enters the membrane, the targeted substance reacts
with SLiM's proprietary  chemical solution and is extracted through the membrane
into a strip  solution  where it is then stored.  The  remaining  feedstream  is
either  recycled or discharged  free of the  extractant(s).  In some  instances,
additional treatment may be required prior to discharge.

         In December 1997 and February  1998,  the Company was awarded its first
two commercial contracts from Maryland  Environmental Service ("MES") to use its
SLiM  technology  in connection  with the removal of chromium in water  leaching
from waste sites at Baltimore  Harbor and  potentially  polluting the Chesapeake
Bay. The Company installed the SLiM based processing systems as per contract but
was unable to remove the chromium due to third party  technology  failures.  The
Company removed the SLiM based processing systems in June of 1999 at the request
of MES.  Prior to these  awards,  the Company had  performed a series of on-site
demonstrations   of  SLiM,  in  which  a  SLiM  unit,  in  a  single  feedstream
passthrough,  reduced the  contamination  level of  chromium  from more than 630
parts per million (ppm) to less than one ppm. The Company has  demonstrated  the
ability of the SLiM technology in the separation of various  radionuclides  from
aqueous mixed waste streams in third party laboratory experiments. The Company's
business  strategy is to pursue  these and other  opportunities  for SLiM and to
seek marketing  arrangements  with  established  engineering  and  environmental
services firms to use SLiM.  Although the technology has proven to be successful
in limited testing, the Company has been unable to achieve successful results in
a large scale operation or have the operations be economically viable.

         To finance the significant growth expected by the Company,  the Company
raised a net amount equal to  approximately  $11,100,000  from an initial public
offering of its preferred stock, common stock and warrants in April and May 1997
(the "IPO").  As of January 15, 2003  approximately  85% of the Company's common
stock was owned by Commodore Environmental Services, LLC ("LLC"), a wholly owned
subsidiary of Commodore  Environmental  Services,  Inc., a Delaware  corporation
("Environmental").  Effective  as  of  September  28,  1998,  Commodore  Applied
Technologies,  Inc., a Delaware  Corporation  ("Applied"),  transferred  its 87%
interest  in the  Company  to  Environmental  as  part  of a debt  restructuring
agreement  consummated  between the two companies  following  the  completion of
fairness opinions.

         In April  2000,  the Company  was  notified  by Maryland  Environmental
Services  ("MES")  requesting the removal of the SliM equipment from the Port of
Baltimore  Dundalk Marine Terminal and Hawkins Point  facilities.  MES cited the
fact that the  Company had removed  Chromium VI as per the  requirements  in the
contract,  however there remained trace amounts of Chromium III in the leachate,
which resulted in the total chromium concentrations to exceed contract specified
amounts.  The  Company has made  several  attempts  to remove  trace  amounts of
Chromium III, including the use of alternative technologies,  however was unable
to satisfy MES requirements. It should be noted that the original samples tested
from the leachate  solution did not have Chromium III present and therefore this
problem was not foreseen.  As a result,  the Company has withdrawn its equipment
from the Port of Baltimore and  transferred  it, along with its inventory,  to a
storage facility in Albuquerque, New Mexico.

         In June 2000, the Company closed its Kennesaw,  Georgia facility.  As a
result,  the Company  transferred  approximately  $227,000 of lab  equipment and
furniture   and   fixtures   to   Commodore    Environmental    Services,   Inc.
"Environmental",  the owner of 87% of the issued and outstanding common stock of
the  Company,  in  exchange  for  $227,000  of  intercompany  indebtedness.  The
remainder of equipment and inventory was  transferred  to a storage  facility in
Albuquerque, New Mexico. As a result of the closure, all of the employees in the
Georgia facility have found other employment or have been released.



                                       1
<PAGE>

         As a result of the  closure,  the  Company  has  recorded a reserve for
inventory  obsolescence of $519,000,  an impairment reserve on long-lived assets
of $428,000, a write off of leasehold improvements of $85,000 and a write off of
intangibles  of $175,000 in the year ended  December 31, 2000. The Company plans
to continue to search for applications  for its technology.  The Company has had
no operations  since  December 31, 2000 and is  considered a  development  stage
company for financial reporting purposes,  due to the limited revenues generated
since inception.

         The  Company  was  incorporated  in  Delaware  in  November  1995.  The
Company's principal executive offices are located at 150 East 58th Street, Suite
3238,  New York,  New York 10155,  and its  telephone  number at that address is
(212) 308-5800.

THE SLiM TECHNOLOGY

         Although  SLiM  uses  the  same  basic  principles  as  other  membrane
separation technologies, the Company believes that SLiM represents a significant
advance in  membrane  separation  technology  in the  treatment  of  solubilized
feedstreams.  SLiM acts by separating and extracting the targeted materials from
the  feedstream,  rather  than  trapping  the  target  material  as  the  entire
feedstream passes through the filter mechanism. As a result, for the first time,
a single process is capable of treating a variety of elements and compounds in a
variety  of  industrial  settings,  and doing so at great  speed and with a high
degree of effectiveness regardless of particle size and volume requirements. The
Company also  believes  that SLiM is the first  membrane  separation  technology
which is capable,  in a single process  application,  of selectively  extracting
multiple  elements or compounds from a mixed process  stream.  The SLiM membrane
modules  can also be  configured  in various  sizes and  numbers and for varying
capacities, and operate at ambient temperatures and pressures.

         SLiM  involves  passing a  contaminated  aqueous or gaseous  feedstream
through  a  porous,  hollow  fiber  membrane  unit or  module.  This  module  is
previously  loaded with  chemicals  whose  composition  varies  depending on the
targeted  substance in the feedstream.  As the feedstream enters the module, the
metal or other substance to be extracted  reacts with the  proprietary  chemical
combination in the module,  and the metallic or other ions are extracted through
the  membrane  into a strip  solution  that is  concentrated  and  gathered in a
separate storage container.  The balance of the feedstream is either recycled or
simply discharged as normal effluent.  In some instances,  additional  treatment
may be  required  prior  to  discharge,  or  discharge  may need to be made in a
regulated  manner.  The  Company  believes  that  SLiM can be  utilized  in many
instances for the separation and recovery of solubilized metals (e.g., chromium,
cobalt, copper, zinc, strontium,  calcium,  nickel,  cadmium,  silver,  mercury,
platinum  and lead) and,  with  refinement,  radionuclides,  gas,  organics  and
biochemicals.

         The typical SLiM module is cylindrical  in shape.  The module casing is
typically  constructed  of plastic and  contains  the fibers  through  which the
targeted  element or compound is  separated  from the  contaminated  feedstream.
Pumps and pipes feed the  contaminated  feedstock from its point of origin (such
as a metal  plating  tank or bath) into the module.  Additional  pumps and pipes
recycle the strip  solution  that  concentrates  the  contaminant  that is being
deposited  continuously by the Company's  proprietary  chemicals resident in the
membrane.  The Company  formulates the chemical  mixture for the process in each
customer application,  and performs the initial installation of the equipment at
the customer site.  The customer will either operate the equipment  itself using
computer data links to the Company, which will monitor the equipment and process
while in operation,  or the Company will enter into service  contracts  with the
customer to operate the equipment at the customer's site.

         Operational Characteristics

         The  most  common  alternative   methods  for  metals  separation  from
solubilized  process streams  presently  include ion exchange,  reverse osmosis,
precipitation,  ultrafiltration,  nanofiltration and chromatography. The Company
believes that most of these methods have certain  drawbacks,  including  lack of
selectivity in the separation process, inability to handle certain metals in the
process streams and the creation of sludges and other harmful  by-products  that
require further post-treatment prior to disposal.  For example,  reverse osmosis
and  ultrafiltration  are incapable of separating chrome and chromium  materials
from wastewater streams,  and precipitation  results in the production of sludge
that requires  dewatering,  drying and disposal in a landfill.  Certain of these
other technologies also entail long process times and are relatively  expensive.
The Company  believes  that SLiM may be a  cost-effective  alternative  to other
existing forms of membrane filtration technology in that it:


                                       2
<PAGE>

         o    requires lower initial capital costs and lower operating costs;

         o    has the capability of treating a variety of elements and compounds
              in laboratory  and selected  industrial  settings at greater speed
              and with a higher degree of effectiveness;

         o    is environmentally safe, in most instances producing no sludges or
              other  harmful   by-products   which  would   require   additional
              post-treatment prior to disposal;

         o    can  selectively   extract  target   substances  while  extracting
              substantially fewer unwanted substances;

         o    can extract  metals,  organic  chemicals  and other  elements  and
              compounds in degrees of concentration  and purity which may permit
              their reuse; and

         o    has the capability of  selectively  removing more than one element
              from a mixed  process  stream by  incorporating  SLiM  systems  in
              series.


         Test Results

         In more  than  100  laboratory  and  field  tests  to  date,  SLiM  has
demonstrated the ability to successfully  separate a variety of metals and other
substances from aqueous and possibly gaseous process streams.  In each instance,
the process stream was reduced to levels meeting  federal  guidelines  under the
Federal Clean Water Act for the disposal of the reacted process stream as normal
wastewater effluent, and the recovered materials were of sufficient quantity and
purity  as  to  economically   permit  the  reuse  thereof  in  most  commercial
applications. Test results included the following:
<TABLE>
<CAPTION>

                                                                                          Applicable
Material                       Before Treatment       After Treatment                     Federal Guideline
--------                       ----------------       ---------------                     -----------------
<S>                            <C>                    <C>                                 <C>
Metals:

     Chromium (hexavalent)     400 ppm                0.05 ppm (field test)               Less than 0.05 ppm

     Zinc                      2,700 ppm              Less than 2 ppm (after 30 minutes)  Less than 2 ppm

     Cobalt                    500 ppm                Less than 1.1 ppm                   Less than 1.5 ppm

     Copper                    150 - 4,500 ppm        Less than 0.15 ppm                  Less than 1.0 ppm

     Calcium                   85 ppm                 Less than 0.15 ppm                  ------

     Nickel                    2,500 ppm              Less than 1.0 ppm (after 30         Less than 2 ppm
                                                      minutes)
Radionuclides:

     Strontium                 5 ppm                  Less than 0.01 ppm                  -----
</TABLE>

         Some of these tests were  performed  on limited  quantities  of process
streams, and there can be no assurance that the same or similar results would or
could be obtained on a large-scale  commercial basis or on any specific project.
Other than with respect to the  Company's  tests  involving the  separation  and
recovery of zinc,  nickel,  chromium and strontium,  no other tests conducted by
the Company have been independently verified.


                                       3
<PAGE>

CONTRACTS

         As of December  31, 2000 and  subsequent  to that date the Company does
not have any operating contracts.  Contracts and agreements that the Company had
previously, have included:

         Port of Baltimore Contracts.  In November 1997, the Company was awarded
its  first  commercial  project  by the State of  Maryland  and  entered  into a
multi-year,    sole-source    contract    with   MES   for   the    removal   of
chromium-contaminated  leachate at the Hawkins Point  Hazardous  Waste Treatment
Facility at the Port of Baltimore.  The contract,  dated as of November 25, 1997
(the  "Hawkins  Point  Contract"),  provided that the Company would lease a SLiM
unit to MES for a  one-time,  lump-sum  lease  payment  of  $250,000,  and would
license its  proprietary  SLiM technology to MES in exchange for a royalty equal
to one-half of any savings  which MES realized by using the SLiM  technology  as
opposed to conventional non-proprietary remediation technology. The Company also
reserved  the  right  to  market  any  residual  chromium  captured  by its SLiM
technology and receive 50% of the revenues  generated from any commercial  sales
of such residual chromium.  The SLiM equipment was installed in 1998. Throughout
1999, the SLiM equipment installed at the Hawkins Point site experienced several
operation difficulties due to SLiM's inability to remove "total chromium" to the
specified limits on an ongoing  commercial basis. The SliM equipment removed the
Chromium VI to the  specified  limits but was unable to remove the Chromium III,
solely or in conjunction with third party  technology  designed for Chromium III
removal, to the specified limits of the Hawkins Point Contract.  The Company was
unable to remove the Chromium III due to third party  technology  failures.  The
Company removed the SLiM based processing systems in June of 1999 at the request
of MES as it was unable to effectively meet the "total chromium"  removal limits
specified by the Hawkins  Point  Contract.  In 1999,  the Company had  generated
revenues of approximately $250,000 relating to this contract.

         In February 1998, the Company was awarded its second commercial project
by the State of  Maryland  and  entered  into  another  multi-year,  sole-source
contract with MES for the removal of  chromium-contaminated  leachate at Dundalk
Marine Terminal at the Port of Baltimore.  The contract, dated as of February 5,
1998 (the "Dundalk Contract"), provided that the Company would lease a SLiM unit
to MES for a one-time, lump-sum lease payment of $350,000, and would license its
proprietary  SLiM  technology to MES in exchange for a royalty equal to one-half
of any savings  which MES  realized by using the SLiM  technology  as opposed to
conventional  non-proprietary  remediation technology. The Company had satisfied
approximately 25% of the terms of the contract and therefore recorded $87,500 in
revenues for 1999.  As in the case of the Hawkins  Point  Contract,  the Dundalk
Contract  provided  that the Company shall have the right to market any residual
chromium  captured  by its  SLiM  technology  and  receive  50% of the  revenues
generated  from  any  commercial  sales  of such  residual  chromium.  The  SLiM
equipment had been delivered to the site.  Throughout the initial startup trials
at  the  Dundalk  Marine  Terminal,  the  SLiM  equipment  had  been  unable  to
consistently  meet the  "total  chromium"  removal  limits.  The SliM  equipment
removed the Chromium VI to the  specified  limits but was unable to remove trace
amounts of Chromium III to the  specified  limits of the Dundalk  Contract.  The
Company was unable to remove the Chromium III due to  technology  failures.  The
Company removed the SLiM based processing systems in June of 1999 at the request
of MES as it was unable to effectively meet the "total chromium"  removal limits
specified by the Dundalk Contract.

         Lockheed License Agreement. In January 1997, the Company entered into a
license agreement (the "Lockheed License Agreement") with Lockheed Martin Energy
Research  Corporation  ("Lockheed  Martin"),  manager of the Oak Ridge  National
Laboratory,  a United States  Department  of Energy  national  laboratory  ("Oak
Ridge"). Under the terms of the Lockheed License Agreement, the Company received
the exclusive worldwide license, subject to a government use license, to use and
develop the technology related to the separation of the radionuclides technetium
and rhenium from mixed wastes containing radioactive materials. The Company also
received  under  the  Lockheed  License  Agreement  the  right  to  exploit  the
technology for other commercial  applications.  Pursuant to the Lockheed License
Agreement,  the  Company  made an  initial  cash  payment  of  $50,000  upon the
execution of the agreement and is obligated to pay a royalty to Lockheed  Martin
of 2% of  net  sales  (less  allowances  for  returns,  discounts,  commissions,
freight,  and excise or other taxes) up to total net sales of $4,000,000  and 1%
of net sales  thereafter.  In  addition,  the  Company  has agreed to  guarantee
Lockheed Martin,  during the term of the Lockheed License  Agreement,  an annual
minimum royalty of $15,000  commencing in the third year of the Lockheed License
Agreement.  The Lockheed  License  Agreement  was  terminated  by the Company on
February  28,  2000.  The Company  determined  that the  patents  covered by the
Lockheed License Agreement were not commercially viable.

                                       4
<PAGE>

MARKETS AND CUSTOMERS

         Overview

         Based on market data  compiled by the  Company,  the Company  estimates
that,  as of  December  31,  2002,  there  were  approximately  5,000  companies
operating metal plating and metal finishing facilities in the United States that
may be potential  users of the SliM  technology.  Additionally,  there were more
than 1,000 biochemical,  bulk drug  manufacturing and  pharmaceutical  companies
operating  in the United  States and Canada that may be  potential  users of the
SLiM technology.  The Company believes that the potential  international  market
for the above  applications may be equal to the North American market.  Federal,
state and local government entities are also a potential market for the Company,
particularly in the area of environmental  remediation and clean-up. The Company
has been unsuccessful in obtaining any new contracts since the Port of Baltimore
contracts and has limited resources to attract additional contracts.

         Commercialization and Marketing Strategy

         Currently,  the  Company  does  not  have an  active  commercialization
program. Historically, the Company intended to lease its equipment to customers,
with the lease payments being due and payable after  installation and successful
start-up of the equipment.  When replacement  modules are required,  the Company
would supply  these  modules at a  reasonable  mark-up  over their cost.  As new
patents  are filed and  issued,  the Company  might,  for certain  applications,
determine  to make a direct  sale of the  equipment  with  additional  long-term
royalty payment provisions. The Company might obtain additional revenues through
servicing the SLiM  equipment,  including  periodic  replacement of the membrane
component.  In addition to leasing and selling its equipment,  the Company might
charge its customers based on a percentage of the customer's actual cost savings
derived  from  reduced  disposal  costs and  recovered  reusable  materials.  In
applications  in which  reusable  materials  are not  recovered,  the  Company's
ongoing charges may be based on the volume of materials processed.  There are no
current marketing efforts for the Company's SliM technology.

         Metals Separation and Recovery. The Company's initial marketing efforts
were in this  industrial  sector,  in  which  the  separation  and  recovery  of
metal-bearing  aqueous solutions presented a substantial  market.  Primary among
the  potential  customers  in this area are metal  plating  and metal  finishing
operations,  which generate  substantial volumes of mixed metals process streams
for which a limited number of potentially  effective  technologies are available
to  effect  proper  separation.  Based  on  historical  management  studies  and
discussions with metals industry executives, the Company believes that the major
competitive  technologies in this area are  precipitation  and ion exchange.  To
date the  Company  has been  unsuccessful  in  placing  SLiM  equipment  in this
industrial sector.

         Environmental  Remediation and  Restoration.  The Company believes that
SLiM  has  the  potential  for  application  to  environmental  remediation  and
restoration.  In the case of a  project,  it is  expected  that the  remediation
technology will be applied  continuously over a period of many years,  until the
subject  contamination has abated for a significant  period of time. To date the
SLiM technology has not performed profitability on a commercial scale.

         Radionuclide/Mixed  Waste Separation.  In the United States,  there are
numerous  sites  operated or maintained by the DOE and/or the DOD at which there
are present  "mixed wastes"  containing  radionuclides  intermingled  with other
hazardous  wastes.  These  sites  are also  contaminated  with  other  compounds
associated  with  nuclear   weapons   testing  and  nuclear  energy.   SLiM  has
successfully  demonstrated  on a limited scale the capability for the separation
of  radionuclides  such as strontium and cesium.  The United  States  government
estimates that potential government expenditures in this market could be between
$234 billion and $389 billion over the course of the next 75 years.  The Company
anticipated   pursuing  this  market  area  in  collaboration  with  established
engineering and environmental service organizations, which can provide technical
and professional expertise, market presence and credibility. To date the Company
has been unsuccessful in placing SLiM equipment in this market sector.

RAW MATERIALS

         The Company currently has a limited number of outside sources of supply
for some strategic  components  used in the SLiM process,  including  chemicals,
fibers and membrane casings.  Business disruptions or financial  difficulties of
such suppliers,  or raw material  shortages or other causes beyond the Company's
control, could adversely affect the Company by increasing the cost of goods sold
or reducing the availability of such components. In its development to date, the
Company has been able to obtain adequate supplies of these strategic components.

                                       5
<PAGE>

However, as it develops its commercial activities,  the Company may experience a
rapid and substantial increase in its requirements for these components.  If the
Company were unable to obtain a  sufficient  supply of required  components,  it
could experience significant delays in the manufacture of SLiM equipment,  which
could  result in the loss of orders  and  customers  and could  have a  material
adverse  affect on the Company's  business,  financial  condition and results of
operations.  In addition,  if the cost of raw  materials or finished  components
were to increase,  there can be no assurance  that the Company  would be able to
pass such increase to its customers.  The use of outside  suppliers also entails
risks of quality control and disclosure of proprietary information.

BACKLOG

         At December 31, 2002, the Company had no backlog.

RESEARCH AND DEVELOPMENT

         Research and  development  activities are ongoing and utilize  internal
technical staff, as well as independent consultants retained by the Company. All
such activities are  company-sponsored.  The Company has had no expenditures for
research and development for the years ended December 31, 2002 and 2001.

INTELLECTUAL PROPERTY

         In September 1997, the Company filed two U.S. patent  applications  and
one international patent application covering the principal features of its SLiM
technology.  One of the patent  applications  covers the joint inventions of Dr.
Kilambi and Lockheed Martin.  The other patent application and the international
patent  application  cover the sole inventions of Dr.  Kilambi.  The U.S. Patent
Office has  decided to issue a patent  for one of the two  claims  covering  the
joint  inventions of Dr.  Kilambi and Lockheed  Martin.  The other claim will be
separated  from  the  original  application  and  filed  as  a  separate  patent
application.  Based on comments provided by the U.S. Patent Office,  the Company
has decided to abandon the two patent applications  covering the sole inventions
of Dr.  Kilambi.  The Company has been issued three US patents to date for using
strip  dispersion  for  the  separation  of  radionuclides,  heavy  metals,  and
chromium;  the sole  invention  of Dr.  W.S.  Winston  Ho,  former  Senior  Vice
President -  Technology.  Additionally,  the Company has filed for one US patent
and two foreign patents for using a strip dispersion technique covering the sole
inventions of Dr. W.S. Winston Ho.

         The Company's liquid membrane  technology patent applications are based
on the selective combination of different known solvents,  supports,  dilutents,
carriers and other  components  to separate a variety of metals,  chemicals  and
other targeted substances. While the Company believes that its technology covers
many  separation  applications,   third  parties  may  have  developed,  or  may
subsequently assert claims to, certain of these solvents,  supports,  dilutents,
carriers or other  components  for one or more  specific  applications.  In such
event,  the Company may need to acquire  licenses to, or to contest the validity
of, issued or pending patents or claims of third parties.

         To protect its trade secrets and the unpatented proprietary information
in its development activities,  the Company requires its employees,  consultants
and contractors to enter into agreements  providing for the  confidentiality and
the Company's  ownership of such trade secrets and other unpatented  proprietary
information  originated by such persons while in the employ of the Company.  The
Company  also   requires   potential   collaborative   partners  to  enter  into
confidentiality and non-disclosure agreements.

         There can be no  assurance  that any  patents  which may  hereafter  be
obtained, or any of the Company's confidentiality and non-disclosure agreements,
will provide meaningful protection of the Company's  confidential or proprietary
information in the case of unauthorized  use or disclosure.  In addition,  there
can be no  assurance  that the  Company  will not  incur  significant  costs and
expenses,  including the costs of any future litigation, to defend its rights in
respect of any such intellectual property.

COMPETITION

         The  most  common  alternative   methods  for  metals  separation  from
solubilized  process streams  presently  include ion exchange,  reverse osmosis,
precipitation,  ultrafiltration,  nanofiltration and chromatography. The Company
believes that most of these methods have certain  drawbacks,  including  lack of
selectivity in the separation process, inability to handle certain metals in the
process streams,  and the creation of sludges and other harmful by-products that
require further post-treatment prior to disposal.  For example,  reverse osmosis
and  ultrafiltration  are  incapable  of  separating  chromium  from  wastewater

                                       6
<PAGE>

streams,  and  precipitation  results in the  production of sludge that requires
dewatering,   drying  and  disposal  in  a  landfill.  Certain  of  these  other
technologies also entail long process times, and are relatively expensive.

         By  contrast,  the Company  believes  SLiM may be capable of handling a
broad range of compounds in a faster and cost effective manner. Furthermore, the
expected by-products of the SLiM process consist primarily of wastewater,  which
can be  discharged  as  normal  wastewater  effluent,  and to a  lesser  extent,
materials requiring landfill disposal.

         Separation  technologies  are  currently  utilized by a wide variety of
domestic and international  companies,  including several large companies having
substantially  greater financial and other resources than the Company.  Although
the  Company  believes  that  SLiM may have  advantages  over many  other  known
separation technologies,  any one or more of the Company's competitors, or other
enterprises not presently known, may develop  technologies which are superior to
SLiM.  To the  extent the  Company's  competitors  are able to offer  comparable
services  at  lower  prices  or  of  higher  quality,   or  more  cost-effective
alternatives,  the Company's ability to compete  effectively could be materially
adversely affected. The Company believes that its ability to compete in both the
commercial  and  governmental  sectors is dependent  upon SLiM being a superior,
more cost-effective method to achieve separation and/or recovery of a variety of
materials in varying amounts and  configurations.  In the event that the Company
is  unable  to  demonstrate  that  SLiM  is  a   technologically   superior  and
cost-effective  alternative  to other  separation  technologies  on a commercial
scale, the Company may not be able to compete successfully.

GOVERNMENT REGULATION

         The Company and its  customers  are required to comply with a number of
federal, state and local laws and regulations in the areas of safety, health and
environmental controls, including, without limitation, the Resource Conservation
and  Recovery  Act, as amended,  and the  Occupational  Safety and Health Act of
1970,  which may require the Company,  its prospective  working  partners or its
customers to obtain  permits or approvals to utilize SLiM and related  equipment
on  certain  job  sites.  In  addition,  if the  Company  begins to market  SLiM
internationally,  the  Company  would  be  required  to  comply  with  laws  and
regulations  and, when  applicable,  obtain  permits or approvals in those other
countries.  There is no assurance that such required  permits and approvals will
be obtained. Furthermore,  particularly in the environmental remediation market,
the  Company may be required to conduct  performance  and  operating  studies to
assure   government   agencies  that  SLiM  and  its  by-products  do  not  pose
environmental  risks.  There is no assurance  that such studies,  if successful,
will not be more costly or  time-consuming  than  anticipated.  Further,  if new
environmental  legislation or regulations are enacted or existing legislation or
regulations  are  amended,  or are  interpreted  or  enforced  differently,  the
Company,  its prospective  working partners and/or its customers may be required
to meet  stricter  standards of  operation  and to obtain  additional  operating
permits or approvals.

ENVIRONMENTAL MATTERS

         The Company's  operations,  as well as the use of specialized technical
equipment by its  customers,  are subject to numerous  federal,  state and local
regulations  relating to the  storage,  handling and  transportation  of certain
regulated  materials.  Although the Company's role would be generally limited to
the leasing of its  specialized  technical  equipment for use by its  customers,
there is always the risk of the  mishandling of such materials or  technological
or equipment  failures,  which could result in  significant  claims  against the
Company.  Any such claims against the Company could materially  adversely affect
the Company's business, financial condition and results of operations.

         The Company maintains  environmental liability insurance with limits of
$1.0 million per occurrence  and $2.0 million in the aggregate.  There can be no
assurance  that such  insurance will provide  coverage  against all claims,  and
claims may be made against the Company (even if covered by an insurance  policy)
for amounts  substantially in excess of applicable policy limits. Any such event
could  have a  material  adverse  effect on the  Company's  business,  financial
condition and results of operations.

EMPLOYEES

         As of January 15, 2003, the Company had no full-time employees.

                                       7
<PAGE>

ITEM 2.    PROPERTIES.
-------    -----------

         The Company  maintains  executive  offices  located in New York City in
approximately  2,000  square feet of space  leased by an affiliate of Bentley J.
Blum, a director and principal  stockholder of  Environmental  and a director of
the  Company.  Such  space also  serves as the  principal  executive  offices of
Environmental.


ITEM 3.   LEGAL PROCEEDINGS.
-------   ------------------

         The  Company,  along  with  several  other  entities,  in a prior  year
guaranteed a performance  bond of  Separation  relating to the Port of Baltimore
contract. The Company was notified on June 28, 2000 that the performance bond is
being called.  It is not known, at this time, the amount,  if any, the Company's
share will be.

         As of January  15,  2003,  no  litigation  has been filed  against  the
Company with  respect to this  indemnification  issue.  The Company is currently
investigating all of the relevant facts and circumstances in connection with the
Surety's  potential claim or cause of action. The Company is unable to determine
the amount, if any, of the potential claim.


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

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of the year ended December 31, 2002.


                                     PART II
                                     -------

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

MARKET INFORMATION

         The  Company's  common  stock,  par value  $0.001  per  share  ("Common
Stock"),  10% Senior  Convertible  Preferred  Stock,  par value $0.001 per share
("Convertible  Preferred Stock"),  and Redeemable Common Stock Purchase Warrants
("Warrants")  began trading publicly on April 3, 1997 at initial public offering
prices of $5.00 and $10.00 per share,  respectively,  and $0.10 per  Warrant and
were  traded and  quoted on the  Nasdaq  SmallCap  Market  ("Nasdaq")  under the
symbols CXOT,  CXOTP and CXOTW,  respectively,  until  February 18, 1999. At the
close of business on February 18, 1999, at which time the  Company's  securities
were delisted from the Nasdaq Stock Market because of the Company's inability to
satisfy the revised minimum standards for continued listing on the Nasdaq Market
System.  The Company is currently  listed on the OTC Bulletin  Board. On January
15, 2003,  there were  approximately  177 holders of record of Common Stock, two
holders  of record of  Convertible  Preferred  Stock and 16 holders of record of
Warrants.

         The following table sets forth, for the periods shown, the high and low
bid  prices of the  Common  Stock,  Convertible  Preferred  Stock  and  Warrants
(rounded  to the  nearest  cent) as quoted by Nasdaq.  Such  quotations  reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.

                                       8
<PAGE>

<TABLE>
<CAPTION>

                                                                                 Convertible
                                                 Common Stock                  Preferred Stock                      Warrants
                                           ---------- ---- ----------    ---------- --- -------------    ----------- --- -----------
                                             High             Low          High             Low             High            Low
                                           ----------      ----------    ----------     -------------    -----------     -----------
<S>                                            <C>             <C>           <C>               <C>            <C>             <C>
FISCAL YEAR 2002
   January 1 to March 31, 2002.......          $0.01           $0.01         $0.00             $0.00          $0.00           $0.00
   April 1 to June 30, 2002..........           0.01            0.01          0.00              0.00           0.00            0.00
   July 1 to September 30, 2002......           0.01            0.01          0.00              0.00           0.00            0.00
   October 1 to December 31, 2002....           0.01            0.01          0.00              0.00           0.00            0.00

FISCAL YEAR 2001
   January 1 to March 31, 2001.......          $0.07           $0.04         $0.10             $0.04          $0.00           $0.00
   April 1 to June 30, 2001..........           0.06            0.01          0.04              0.04           0.00            0.00
   July 1 to September 30, 2001......           0.01            0.01          0.00              0.00           0.00            0.00
   October 1 to December 31, 2001....           0.01            0.01          0.00              0.00           0.00            0.00
</TABLE>

DIVIDEND INFORMATION

         The holders of the Company's  Convertible  Preferred Stock are entitled
to receive  if,  when and as  declared  by the Board of  Directors  out of funds
legally available therefore, cumulative dividends at the rate of $1.00 per share
per annum,  quarterly on the last  business day of March,  June,  September  and
December of each year,  before any  dividends are declared or paid on the Common
Stock or any capital stock ranking junior to the  Convertible  Preferred  Stock.
The Company  ceased  paying  cash  dividends  to the Holders of the  Convertible
Preferred Stock commencing with the Dividend for the quarter ended September 30,
1998. The Company does not anticipate  that it will continue to pay similar cash
dividends on its Convertible Preferred Stock in the foreseeable future.

         The Company has never paid cash  dividends on its Common Stock and does
not  anticipate  paying cash  dividends on its Common  Stock in the  foreseeable
future.

         Any future  determination  as to the payment of cash  dividends  on the
capital  stock of the  Company  will  depend on the  ability  of the  Company to
service its outstanding indebtedness and future earnings,  capital requirements,
the  financial  condition of the Company and such other factors as the Company's
Board of Directors may consider.


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

GENERAL

         The  Company was  organized  in November  1995,  and has not  generated
material revenues or any profits through December 31, 2002. Since its inception,
the Company has been engaged principally in organizational activities, including
research and development,  developing a strategic  operating plan, entering into
contracts, hiring personnel, developing and manufacturing commercial-scale units
and installing and operating  units on an extended  basis for  demonstration  or
test purposes.  Accordingly,  the Company has a limited  operating  history upon
which an evaluation of its performance and prospects can be made. The Company is
subject  to  all  of  the  business  risks  associated  with  a new  enterprise,
including, but not limited to, risks of unforeseen capital requirements, failure
of  market  acceptance,   failure  to  establish  business  relationships,   and
competitive disadvantages as against larger and more established companies.

         The Company has generated  nominal revenues to date.  During the period
from  November 15, 1995 (date of  inception)  to December 31, 2002,  the Company
incurred a net loss of  $13,448,000.  For the year ended  December 31, 2002, the
Company  incurred a loss of $29,000,  had no operations and anticipates  that it
may continue to incur significant losses for the foreseeable  future.  There can
be no  assurance  as to  whether  or when the  Company  will  generate  material
revenues or achieve  profitable  operations.  See  "Business"  and the Financial
Statements and Notes thereto included elsewhere in this Annual Report.

                                       9
<PAGE>

         In April  2000,  the Company  was  notified  by Maryland  Environmental
Services  ("MES")  requesting the removal of the SliM equipment from the Port of
Baltimore  Dundalk Marine Terminal and Hawkins Point  facilities.  MES cited the
fact that the  Company had removed  Chromium VI as per the  requirements  in the
contract,  however there remained trace amounts of Chromium III in the leachate,
which resulted in the total chromium concentrations to exceed contract specified
amounts.  The  Company has made  several  attempts  to remove  trace  amounts of
Chromium III, including the use of alternative technologies,  however was unable
to satisfy MES requirements. It should be noted that the original samples tested
from the leachate  solution did not have Chromium III present and therefore this
problem was not foreseen.  As a result,  the Company has withdrawn its equipment
from the Port of Baltimore and  transferred  it, along with its inventory,  to a
storage facility in Albuquerque, New Mexico.

         In June 2000, the Company closed its Kennesaw,  Georgia facility.  As a
result,  the Company  transferred  approximately  $227,000 of lab  equipment and
furniture   and   fixtures   to   Commodore    Environmental    Services,   Inc.
"Environmental",  the owner of 85% of the issued and outstanding common stock of
the  Company,  in  exchange  for  $227,000  of  intercompany  indebtedness.  The
remainder of equipment and inventory was  transferred  to a storage  facility in
Albuquerque, New Mexico. As a result of the closure, all of the employees in the
Georgia facility have found other employment or have been released.

         As a result of the  closure,  the  Company  has  recorded a reserve for
inventory  obsolescence of $519,000,  an impairment reserve on long-lived assets
of $428,000, a write off of leasehold improvements of $85,000 and a write off of
intangibles  of $175,000 in the year ended  December 31, 2000. The Company plans
to continue to search for applications for its technology.

         The Company  does not expect  significant  changes in  employees or the
purchase or sale of assets.

RESULTS OF OPERATIONS

Year ended December 31, 2002 compared to year ended December 31, 2001

         The Company has no ongoing  operations  as of December  31,  2001.  The
Company  had no  revenues  or cost of  sales  in 2002 and  2001.  There  were no
research and development costs in 2002 or 2001.

         General and  administrative  expenses  were  $29,000 for the year ended
December 31, 2002 as compared to $95,000 for the year ended December 31, 2001.

         Interest  income  was  $4,000  in  2001.  Interest  was  earned  on the
restricted  cash  which  was  invested  in   certificates   of  deposit.   These
certificates of deposit collateralized outstanding letters of credit relating to
the Port of Baltimore projects.

LIQUIDITY AND CAPITAL RESOURCES

         The Company has  sustained  losses of $29,000 and $91,000 for the years
ended December 31, 2002 and 2001,  respectively.  The Company had no significant
revenues  during the period  from  November  15,  1995  (date of  inception)  to
December 31, 2002 and is considered a development  stage company.  Substantially
all of the Company's losses are attributable to the expenses  detailed above. At
December 31, 2002 the Company had a working  capital deficit of $4,325,000 and a
stockholders'  deficit of $4,325,000.  The Company's decrease in working capital
is principally  due to the net loss for the period and dividends paid or accrued
on the Company's  Convertible Preferred Stock. The net loss includes impairments
and write-offs of the Company's assets.

         The Company has been obtaining  financing from Commodore  Environmental
Services,  Inc.,  the owner of 85% of the  outstanding  shares of Common  Stock,
however  there can be no assurance  that the Company will continue to be able to
obtain additional financing from Environmental.  The Company's continuation as a
going concern is dependent  upon its ability to obtain  additional  financing as
may be required, and ultimately to attain profitability.

                                       10
<PAGE>

         The Company has a working  capital  deficit,  a deficit in equity,  has
incurred  substantial  losses from  operations  and has not generated  cash from
operating  activities.  Presently,  the Company  does not have  sufficient  cash
resources to meet its  requirements in 2003 or the necessary  working capital to
develop profitable operations from using its patented technology.  The financial
statements  do not include any  adjustments  that might be necessary  should the
Company be unable to continue as a going concern.

NET OPERATING LOSSES

         At  December  31,  2002,  the  Company  had tax loss  carryforwards  of
approximately  $12,300,000.  The amount of and ultimate  realization  of benefit
from the net operating loss for income tax purposes is dependent,  in part, upon
the tax laws in effect, future earnings of the Company, and other future events,
the effects of which cannot be determined.  A change in ownership of the Company
may reduce the amount of loss allowable. These net operating carryforwards begin
to expire in 2011. A full valuation  allowance has been  established  because of
the  uncertainty  about  whether  the  Company  will  realize the benefit of net
operating losses.

CONTROLS AND PROCEDURES

         (a) Evaluation of disclosure controls and procedures.

         Paul Hannesson who serves as Commodore Separation Technologies,  Inc.'s
chief  executive  officer and Andrew P. Oddi who serves as Commodore  Separation
Technologies, Inc.'s chief financial officer, after evaluating the effectiveness
of Commodore  Separation  Technologies,  Inc.'s internal controls and procedures
(as defined in Exchange Act Rules 13a-14(c) and 15d-14(c) as of a date within 90
days of the filing date of the annual  report (the  Evaluation  Date)  concluded
that  as of the  Evaluation  Date,  Commodore  Separation  Technologies,  Inc.'s
internal  controls and  procedures  were  adequate and  effective to ensure that
material information relating to Commodore Separation  Technologies,  Inc. would
be made known to them by others  within  the  Company,  particularly  during the
period in which this annual report was being prepared.

         (b) Changes in internal controls.

         There were no significant changes in Commodore Separation Technologies,
Inc.'s  internal  controls or in other factors that could  significantly  affect
Commodore  Separation  Technologies,  Inc.'s disclosure  controls and procedures
subsequent to the Evaluation Date, nor any significant  deficiencies or material
weaknesses  in such  disclosure  controls and  procedures  requiring  corrective
actions. As a result, no corrective actions were taken.

NEW ACCOUNTING PRONOUNCEMENTS

         In June  2001,  the  FASB  issued  Statement  of  Financial  Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations". This Statement
addresses financial accounting and reporting for obligations associated with the
retirement of tangible  long-lived  assets and the associated  asset  retirement
costs.  This Statement is effective for financial  statements  issued for fiscal
years  beginning  after  June  15,  2002.  This  Statement  addresses  financial
accounting and reporting for the disposal of long-lived  assets.  The Company is
currently assessing the impact of this statement.

         In April  2002,  the FASB  issued  Statement  of  Financial  Accounting
Standards  (SFAS) No. 145,  "Rescission  of FASB  Statements  No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical  Corrections."  This statement
requires the classification of gains or losses from the  extinguishments of debt
to meet the criteria of Accounting  Principles  Board Opinion No. 30 before they
can be  classified  as  extraordinary  in the  income  statement.  As a  result,
companies that use debt  extinguishment  as part of their risk management cannot
classify  the  gain or loss  from  that  extinguishment  as  extraordinary.  The
statement   also   requires   sale-leaseback   accounting   for  certain   lease
modifications that have economic effects similar to sale-leaseback transactions.
The Company does not expect  Adoption of SFAS No. 145 did have a material impact
on financial position or future operations.

         In June 2002,  the FASB  issued  SFAS No.  146,  "Accounting  for Costs
Associated with Exit or Disposal Activities." This standard,  which is effective
for exit or disposal activities  initiated after December 31, 2002, provides new
guidance on the recognition,  measurement and reporting of costs associated with
these activities.  The standard requires companies to recognize costs associated

                                       11
<PAGE>

with exit or disposal  activities when they are incurred rather than at the date
the company commits to an exit or disposal plan. The adoption of SFAS No. 146 by
the Company is not expected to have a material impact on the Company's financial
position or future operations.

         In  December  2002,  the FASB  issued  SFAS  No.  148  "Accounting  for
Stock-Based   Compensation--Transition  and  Disclosure--an  amendment  of  FASB
Statement  No.  123,"  which is  effective  for all fiscal  years  ending  after
December 15, 2002. SFAS No. 148 provides alternative methods of transition for a
voluntary  change to the fair value based method of accounting  for  stock-based
employee  compensation  under SFAS No. 123 from the intrinsic value based method
of accounting prescribed by Accounting Principles Board Opinion No. 25. SFAS 128
also changes the disclosure requirements of SFAS 123, requiring a more prominent
disclosure of the pro-forma  effect of the fair value based method of accounting
for  stock-based  compensation.  The adoption of SFAS No. 148 by the Company did
not have a  material  impact  on the  Company's  financial  position  or  future
operations.

         In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation  No. 46,  Consolidation of Variable Interest Ethics (FIN No. 46),
which  addresses  consolidation  by business  enterprises  of variable  interest
entities.  FIN No. 46 clarifies the application of Accounting  Research Bulletin
No. 51, Consolidated  Financial Statements,  to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have  sufficient  equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. FIN No. 46
applies  immediately  to variable  interest  entities  created after January 31,
2003,  and to  variable  interest  entities  in which an  enterprise  obtains an
interest  after that date. It applies in the first fiscal year or interim period
beginning  after  June 15,  2003,  to  variable  interest  entities  in which an
enterprise  holds a variable  interest that it acquired before February 1, 2003.
The Company does not expect to identify any variable interest entities that must
be  consolidated.  In the event a variable  interest  entity is identified,  the
Company does not expect the requirements of FIN No. 46 to have a material impact
on its financial condition or results of operations.

         In November 2002, the FASB issued  Interpretation  No. 45,  Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of Indebtedness  of Others (FIN No. 45). FIN No. 45 requires  certain
guarantees  to be  recorded  at fair  value,  which is  different  from  current
practice  to record a  liability  only when a loss is  probable  and  reasonably
estimable,  as those terms are defined in FASB  Statement No. 5,  Accounting for
Contingencies.  FIN No. 45 also  requires  the Company to make  significant  new
disclosures  about  guarantees.  The disclosure  requirements  of FIN No. 45 are
effective for the Company in the first quarter of fiscal year 2003. FIN No. 45's
initial  recognition  and initial  measurement  provisions  are  applicable on a
prospective  basis to guarantees issued or modified after December 31, 2002. The
Company's  previous  accounting for  guarantees  issued prior to the date of the
initial application of FIN No. 45 will not be revised or restated to reflect the
provisions  of FIN No 45. The Company does not expect the adoption of FIN No. 45
to have a material impact on its  consolidated  financial  position,  results of
operations or cash flows.

FORWARD-LOOKING STATEMENTS

         Certain  matters  discussed in this Annual Report are  "forward-looking
statements" intended to qualify for the safe harbors from liability  established
by Section 27A of the Securities Act and Section 21E of the Securities  Exchange
Act of 1934, as amended (the "Exchange Act"). These  forward-looking  statements
can generally be  identified  as such because the context of the statement  will
include words such as the Company "believes,"  "anticipates," "expects" or words
of similar  import.  Similarly,  statements  that describe the Company's  future
plans, objectives or goals are also forward-looking  statements. Such statements
may address future events and  conditions  concerning,  among other things,  the
Company's  results of operations and financial  condition;  the  consummation of
acquisition and financing  transactions  and the effect thereof on the Company's
business;  capital  expenditures;   litigation;   regulatory  matters;  and  the
Company's  plans and  objectives for future  operations and expansion.  Any such
forward-looking  statements would be subject to the risks and uncertainties that
could cause actual results of  operations,  financial  condition,  acquisitions,
financing transactions,  operations, expenditures, expansion and other events to
differ  materially  from those  expressed  or  implied  in such  forward-looking
statements.  Any such forward-looking statements would be subject to a number of
assumptions  regarding,  among other things,  future  economic,  competitive and
market  conditions  generally.  Such  assumptions  would be  based on facts  and
conditions  as they  exist  at the  time  such  statements  are  made as well as
predictions as to future facts and conditions,  the accurate prediction of which
may be  difficult  and involve the  assessment  of events  beyond the  Company's
control.  Further,  the Company's  business is subject to a number of risks that
would affect any such forward-looking statements.  These risks and uncertainties
include, but are not limited to, the ability of the Company to commercialize its
technology;  product demand and industry pricing;  the ability of the Company to

                                       12
<PAGE>

obtain patent  protection  for its  technology;  developments  in  environmental
legislation  and  regulation;  the  ability  of the  company  to  obtain  future
financing on favorable  terms;  and other  circumstances  affecting  anticipated
revenues and costs. These risks and uncertainties  could cause actual results of
the  Company  to differ  materially  from  those  projected  or  implied by such
forward-looking statements.


ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------  --------------------------------------------

         The  financial  statements  of the  Company  are  included on pages F-1
through F-26 of this Annual Report and are incorporated herein by reference.


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

         None

                                       13
<PAGE>

                                    PART III
                                    --------


ITEM 9.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
-------   ---------------------------------------------------

EXECUTIVE OFFICERS AND DIRECTORS

         The names  and ages of the  executive  officers  and  directors  of the
Company,  and their  positions  with the Company as of January 15, 2003,  are as
follows:

Name                      Age           Position
----                      ---           --------

Paul E. Hannesson.......  63   Chairman of the Board and Chief Executive Officer

Andrew P. Oddi..........  41   President

James M. DeAngelis......  42   Senior Vice President - Sales & Marketing

Bentley J. Blum.........  61   Director

-----------------------

         Paul  E.  Hannesson  has  been a  director  of the  Company  since  its
inception,  served as its  Chairman of the Board from  November  1995 to January
1997, and was  re-appointed  Chairman of the Board and appointed Chief Executive
Officer in May 1997.  Mr.  Hannesson  has been a director of  Commodore  Applied
Technologies,  Inc.  ("Applied")  since March 1996 and served as Chairman of the
Board from November  1996 through  January 2001.  Mr.  Hannesson  also served as
Chief  Executive  Officer of Applied from March to October 1996 and as President
of Applied from March to September  1996, and was  re-appointed  Chief Executive
Officer of Applied in November  1996 and  President  in May 1997,  positions  he
served until January 2001.  Mr.  Hannesson has been a director of  Environmental
since  February  1993 and was  appointed  its  Chairman  of the  Board and Chief
Executive  Officer in November 1996.  Mr.  Hannesson also served as President of
Environmental from February 1993 to July 1996 and was re-appointed  President in
May 1997. Mr.  Hannesson was a private  investor and business  consultant,  from
1990 to 1993. Mr. Hannesson is the brother-in-law of Bentley J. Blum, a director
of the Company.

         Andrew P. Oddi has served as President of the Company  since July 2001,
succeeding Mr.  Magnell.  Mr. Oddi was appointed Vice President and Treasurer of
the Company, Applied, Environmental, Solution and CFC Technologies in June 1997.
Mr. Oddi also served as Vice  President  of Finance &  Administration  and Chief
Financial  Officer of  Environmental  from 1987 to May 1997 and as a director of
Environmental  from December 1990 to July 1996. Mr. Oddi also served as the Vice
President  of Finance,  Chief  Financial  Officer and  Secretary of Applied from
March to November 1996, and as the Vice  President--Finance  of Separation  from
September 1996 to May 1997.  From 1982 to 1987, Mr. Oddi was employed by Ernst &
Young, independent  accountants,  and held the position of audit manager in 1986
and 1987. Mr. Oddi is a Certified Public Accountant.

         James  M.  DeAngelis  was  appointed  Senior  Vice  President--Sales  &
Marketing  of the  Company  in  July  1996,  after  having  served  as its  Vice
President--Marketing  since November  1995. Mr.  DeAngelis is currently the Vice
President of Finance and Chief Financial  Officer of Applied.  Mr. DeAngelis has
also served as the  President of CFC  Technologies  since  September  1994,  and
served as Vice  President--Marketing  of  Environmental  from  September 1992 to
September 1995. Prior to September 1992, Mr. DeAngelis was completing M.B.A. and
Masters in International Management degrees from the American Graduate School of
International  Management.  Mr.  DeAngelis  holds B.S.  degrees  in Biology  and
Physiology from the University of Connecticut.

         Bentley J. Blum has been a director of the Company  since  August 1996.
Mr. Blum has served as a director of Applied  since March 1996 and served as its
Chairman  of the Board from March to  November  1996.  Mr.  Blum has served as a
director  of  Environmental  since 1984 and served as its  Chairman of the Board
from 1984 to  November  1996.  Mr. Blum also  currently  serves as a director of
Solution  and CFC  Technologies.  For  more  than 15  years,  Mr.  Blum has been
actively  engaged  in  real  estate  acquisitions  and  currently  is  the  sole
stockholder  and  director  of a number of  corporations  that hold real  estate
interests,  oil drilling interests and other corporate interests.  Mr. Blum is a
principal  stockholder of  Environmental  and is the  brother-in-law  of Paul E.
Hannesson, the Chairman of the Board and Chief Executive Officer of the Company.

         Each  director  is elected to serve for a term of one year or until his
successor is duly elected and qualified.  The Company's officers are elected by,
and serve at the  pleasure of, the Board of  Directors,  subject to the terms of
any employment agreements.  Messrs.  Hannesson and Blum are brothers-in-law.  No
family  relationship  exists among any other directors or executive  officers of
the Company.


                                       14
<PAGE>

COMPENSATION OF DIRECTORS

         Each  non-management  director of the Company receives a director's fee
of $500 per  meeting  for  attendance  at Board of  Directors  meetings,  and is
reimbursed  for actual  expenses  incurred  in respect of such  attendance.  The
Company does not separately compensate employees for serving as directors.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         Section 16(a) of the Exchange Act requires the Company's  directors and
executive officers,  and persons who own more than 10% of the outstanding shares
of Common Stock of the Company, to file initial reports of beneficial  ownership
and reports of changes in  beneficial  ownership  of shares of Common Stock with
the Securities  and Exchange  Commission  (the  "Commission")  and Nasdaq.  Such
persons  are  required by  Commission  regulations  to furnish the Company  with
copies of all Section 16(a) forms they file.

         Based  solely  upon a review  of Forms 3 and 4 and  amendments  thereto
furnished to the Company  during the year ended  December  31, 2002,  and upon a
review of Forms 5 and amendments  thereto  furnished to the Company with respect
to the year ended December 31, 2002, or upon written representations received by
the Company from  certain  reporting  persons that no Forms 5 were  required for
those  persons,  the Company  believes  that no director,  executive  officer or
holder of more than 10% of the shares of Common  Stock of the Company  failed to
file on a timely basis the reports required by Section 16(a) of the Exchange Act
during, or with respect to, the year ended December 31, 2002.


ITEM 10.  EXECUTIVE COMPENSATION.
--------  -----------------------

SUMMARY COMPENSATION

         The following table sets forth the amount of all  compensation  paid by
the Company and/or its affiliates and allocated to the Company's  operations for
services  rendered  during the fiscal years ended  December  31, 2002,  2001 and
2000, to the person serving as the Company's current Chief Executive Officer, to
each of the Company's most highly compensated  executive officers other than the
Chief  Executive  Officer  whose total  salary and bonus  compensation  exceeded
$100,000 during any such period.

<TABLE>
<CAPTION>
                           Summary Compensation Table

                                                  Annual Compensation             Long-Term Compensation
                                            -------------------------------     --------------------------
                                                                     Other                     Securities
                                                                    Annual      Restricted       Under-                  All Other
                                                                    Compen-        Stock         Lying         LTIP       Compen-
    Name and Principal                      Salary        Bonus     Sation       Award(s)       Options       Payouts     sation
        Position              Year           ($)          ($)        ($)           ($)           (#)           ($)         ($)
    ------------------        ----          ------        -----     -------     ----------     ----------     -------    --------
<S>                           <C>             <C>          <C>       <C>            <C>           <C>          <C>         <C>
Paul E. Hannesson             2002            -0-          -0-       -0-            -0-           -0-          -0-         -0-
Chief Executive Officer       2001            -0-          -0-       -0-            -0-           -0-          -0-         -0-
                              2000            -0-          -0-       -0-            -0-           -0-          -0-         -0-


James M. DeAngelis            2002            -0-          -0-       -0-            -0-           -0-          -0-         -0-
Senior Vice President         2001            -0-          -0-       -0-            -0-           -0-          -0-         -0-
                              2000            -0-          -0-       -0-            -0-           -0-          -0-         -0-


Andrew Oddi                   2002            -0-          -0-       -0-            -0-           -0-          -0-         -0-
President                     2001            -0-          -0-       -0-            -0-           -0-          -0-         -0-
                              2000            -0-          -0-       -0-            -0-           -0-          -0-         -0-
</TABLE>


--------------------

STOCK OPTIONS

         No stock options were granted in 2002, 2001 or 2000. The Company has no
outstanding stock appreciation  rights and granted no stock appreciation  rights
during the year ended December 31, 2002.


                                       15
<PAGE>

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

         The following table sets forth certain  information with respect to the
beneficial ownership of the Company's common stock as of January 15, 2002 by (i)
each person known to the Company to be the  beneficial  owner of more than 5% of
the outstanding  shares of the Company's common stock, (ii) each director of the
Company,  (iii) each  executive  officer of the Company,  and (iv) all executive
officers and  directors of the Company as a group,  as reported by such persons.
Unless  otherwise  indicated,  the owners have sole voting and investment  power
with respect to their respective shares.
<TABLE>
<CAPTION>


                                                    Number of Shares of Common   Percentage of Outstanding
Name and Address                                        Stock Beneficially               Common Stock
of Beneficial Owner(1)                                      Owned(2)                  Beneficially Owned
----------------------                          -----------------------------   --------------------------
<S>                                                      <C>                                <C>
Commodore Environmental Services, Inc.......             12,380,000(3)                      87.7%

Bentley J. Blum.............................              5,126,987(4)                      36.8%

Paul E. Hannesson...........................              1,242,987(5)                       8.8%

James M. DeAngelis..........................                278,370(6)                       2.3%

Andrew P. Oddi..............................                239,681(7)                       2.0%

All executive officers and directors
as a group (4 persons)......................              6,888,025                         55.8%
</TABLE>

------------------------
* Percentage ownership is less than 1%.

         (1)  The address of each of  Commodore  Environmental  Services,  Inc.,
              Bentley J. Blum, Paul E. Hannesson,  James M. Deangelis and Andrew
              P. Oddi is 150 East 58th Street,  Suite 3238,  New York,  New York
              10155. Bentley J. Blum and Paul E. Hannesson are brothers-in-law.

         (2)  As used herein,  the term  beneficial  ownership with respect to a
              security  is defined by Rule 13d-3 under the  Securities  Exchange
              Act of 1934,  as amended,  as  consisting of sole or shared voting
              power (including the power to vote or direct the vote) and/or sole
              or shared  investment  power  (including  the power to  dispose or
              direct the  disposition  of) with respect to the security  through
              any  contract,   arrangement,   understanding,   relationship   or
              otherwise,  including a right to acquire such power(s)  during the
              next  60  days.  Unless  otherwise  noted,   beneficial  ownership
              consists of sole ownership, voting and investment rights.

         (3)  Consists of: (a) 10,000,000  shares of the Company's  Common Stock
              held by  Commodore  Environmental  Services  LLC,  a wholly  owned
              subsidiary  of Commodore  Environmental  Services,  Inc.;  and (b)
              2,380,000  shares of the Company's  Common Stock  underlying 3,570
              shares of the Company's Series B preferred stock held by Commodore
              Environmental Services, Inc.

         (4)  Consists  of:  (a) 50,000  shares of the  Company's  Common  Stock
              underlying  currently  exercisable  options granted to Mr. Blum by
              the Company under the Plan; and (b) Mr. Blum's indirect beneficial
              ownership  of the  Company's  common  stock based upon Mr.  Blum's
              beneficial  ownership  of (i)  28,479,737  shares and his spouse's
              ownership  of 2,000,000  shares of common stock of  Environmental,
              and  (ii)  4,500,000  shares  of  common  stock  of  Environmental
              underlying  currently  exercisable  stock  options,   representing
              together 41.0% of the outstanding  shares of Environmental  common
              stock.  Does not include  450,400 shares of  Environmental  common
              stock owned by Simone Blum,  the mother of Mr.  Blum,  and 385,000
              shares of  Environmental  common stock owned by Samuel  Blum,  the
              father of Mr. Blum. Mr. Blum disclaims any beneficial  interest in
              the shares of  Environmental  common  stock  owned by his  spouse,
              mother and father.

         (5)  Consists  of:  (a)  280,000  shares  of  Common  Stock  underlying
              currently  exercisable  stock options granted to Mr.  Hannesson by
              the  Company  under  the  Plan  and (b) Mr.  Hannesson's  indirect
              beneficial  ownership  of Common  Stock based upon his  beneficial
              ownership of an aggregate of (i) 2,650,000 shares of Environmental
              common  stock  owned  by  Suzanne  Hannesson,  the  spouse  of Mr.
              Hannesson,  (ii) 2,650,000  shares of  Environmental  common stock
              owned by the Hannesson Family Trust (Suzanne Hannesson and John D.
              Hannesson,  trustees) for the benefit of Mr.  Hannesson's  spouse,
              (iii) 500,000 shares of  Environmental  common stock issued to the
              Hannesson Family Trust in exchange for the surrender of options to
              purchase  950,000  shares  of  Environmental   common  stock  (iv)
              currently  exercisable  options  to  purchase  525,705  shares  of
              Environmental common stock,  representing in the aggregate 7.8% of
              the outstanding  shares of  Environmental  common stock.  Does not
              include  1,000,000 shares of  Environmental  common stock owned by
              each of Jon Paul and Krista  Hannesson,  the adult children of Mr.
              Hannesson.  Mr. Hannesson disclaims any beneficial interest in the
              shares of  Environmental  common stock owned by or for the benefit
              of his spouse and children.

         (6)  Consists of: (a) 1,000 shares of Common Stock; (b) 1,000 shares of
              Common  Stock  underlying  currently  exercisable  warrants;   (c)
              187,500 shares of Common Stock  underlying  currently  exercisable
              stock  options  granted to Mr.  DeAngelis by the Company under the
              Plan;  and (d) Mr.  DeAngelis'  indirect  beneficial  ownership of
              Common Stock based upon his beneficial ownership of 580,000 shares
              of Environmental common stock.

                                       16
<PAGE>

         (7)  Consists  of:  (a)  93,750  shares  of  Common  Stock   underlying
              currently  exercisable  stock  options  granted to Mr. Oddi by the
              Company  under the Plan;  and (d) Mr. Oddi's  indirect  beneficial
              ownership of Common Stock based upon his  beneficial  ownership of
              250,000  shares  of  Environmental   common  stock  and  currently
              exercisable  options to purchase  979,061 shares of  Environmental
              common stock.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
--------  -----------------------------------------------

ORGANIZATION AND CAPITALIZATION OF THE COMPANY

         The Company was organized in November 1995 as a wholly-owned subsidiary
of  Environmental.  In February  1996,  pursuant to an  assignment of technology
agreement between the Company and Srinivas Kilambi,  Ph.D., the Company's former
Senior  Vice  President--Technology,  the  Company  acquired  rights to the SLiM
technology from Dr. Kilambi.  In consideration for such technology,  the Company
caused  Environmental to transfer to Dr. Kilambi 200,000 shares of Environmental
common stock and agreed to pay Dr.  Kilambi a royalty  through  December 3, 2002
equal to 2% of the Company's  revenues  actually  received and attributed to the
commercial  application  of the  acquired  technology,  except for  applications
related to the radionuclides,  technetium and rhenium,  for which Dr. Kilambi is
entitled  to  receive  a  royalty  of 0.66% of net sales  (less  allowances  for
returns,  discounts,  commissions,  freight,  and  excise  or other  taxes).  In
exchange for Environmental's  issuance of such shares to Dr. Kilambi, as well as
Environmental's  funding  and  support of the  Company,  the  Company  issued to
Environmental  10,000,000 shares of Common Stock. See  "Management's  Discussion
and Analysis of Financial  Condition  and Results of  Operations--Liquidity  and
Capital Resources."

         From the Company's inception to December 1996,  Environmental  financed
the research and  development  activities of the Company  through  direct equity
investments  and loans to the Company.  In December 1996, as part of a corporate
restructuring  to consolidate  all of its  environmental  technology  businesses
within  Applied,  Environmental  transferred  to Applied all of the  outstanding
shares of  capital  stock of the  Company  and CFC  Technologies.  In  addition,
Environmental assigned to Applied outstanding Company notes aggregating $976,200
at December 2, 1996,  representing  advances previously made by Environmental to
the  Company.  Such  advances  have been  capitalized  by Applied as its capital
contribution to the Company.  In consideration for such transfers,  Applied paid
Environmental  $3,000,000 in cash and issued to Environmental a warrant expiring
December  2, 2003 to purchase  7,500,000  shares of Applied  common  stock at an
exercise price of $15.00 per share.  Such warrant was  subsequently  amended to,
among other things,  reduce the exercise  price thereof from $15.00 per share to
$10.00 per share. Such warrant is valued at $2.4 million and contains provisions
granting certain  registration  rights with respect to the warrant shares.  As a
result of the IPO,  Applied owned 87% of the outstanding  shares of Common Stock
of the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

         Effective September 28, 1998, Commodore  Environmental  Services LLC, a
Delaware  limited  liability  company  wholly owned by  Environmental,  acquired
10,000,000  shares of common  stock,  par value  $.001 per share  (the  "Company
Stock"),  of the  Company,  representing  approximately  87% of the  issued  and
outstanding shares of capital stock of the Company,  from Applied,  as part of a
debt   repayment   plan  between   Environmental   and  Applied.   In  addition,
Environmental  received 3,570 shares of the Company's  Series B Preferred  Stock
that converts into  2,380,000  shares of the Company's  common stock in exchange
for indebtedness to the Company of $357,000.  The acquisition was consummated on
December  25,  1998.  Environmental  currently  owns  approximately  16%  of the
outstanding shares of Applied common stock.  Bentley J. Blum, a director of COES
and the  beneficial  owner of  approximately  38% of the  outstanding  shares of
Environmental common stock, is also a director of Applied and the Company.

         By virtue of the  foregoing  transaction,  the  Company  had become the
direct,  85%-owned subsidiary of Environmental.  Paul E. Hannesson, the Chairman
of the Board,  President and Chief Executive Officer of Applied and the Chairman
of the Board and Chief Executive Officer of the Company, and James M. DeAngelis,
the  Vice   President--Finance   and   Treasurer   of   Applied   and  the  Vice
President--Sales & Marketing of the Company, maintained their current management
positions in the Company.  The acquisition of the Company by  Environmental  was
accounted for under the purchase method of accounting.

OFFICES

         The Company maintains  approximately  2,000 square feet of office space
in New York, New York, which also serves as offices of  Environmental,  Applied,
certain of their affiliates, and Messrs. Bentley J. Blum and Paul E. Hannesson.

                                       17
<PAGE>

SERVICES AGREEMENT

         In  September  1997,  the  Company,  Applied,  Environmental,  Advanced
Sciences, and certain other affiliates of the Company (the "Affiliated Parties")
entered into a services agreement,  dated as of September 1, 1997 (the "Services
Agreement"),  whereby the Company and the Affiliated Parties agreed to cooperate
in sharing, where appropriate,  costs related to accounting services,  financial
management,   human  resources  and  personnel  management  and  administration,
information systems,  executive  management,  sales and marketing,  research and
development,  engineering,  technical assistance,  patenting, and other areas of
service as are appropriately  and necessarily  required in the operations of the
Company and the Affiliated Parties (collectively,  the "Services").  Pursuant to
the  Services  Agreement,  services  provided by  professional  employees of the
Company  and the  Affiliated  Parties to one another are charged on the basis of
time  actually  worked as a percentage  of salary  (including  cost of benefits)
attributable to that  professional.  In addition,  charges for rent,  utilities,
office  services  and other  routine  charges  regularly  incurred in the normal
course of business are apportioned to the professionals working in the office on
the  basis of  salary,  and then  charged  to any party in  respect  of whom the
professional  devoted such time based upon time  actually  worked.  Furthermore,
charges  from  third  parties,  including,   without  limitation,   consultants,
attorneys and accountants,  are levied against the party actually  receiving the
benefit of such services.  Pursuant to the Services  Agreement,  Applied acts as
the  coordinator of billings and payments for Services on behalf of itself,  the
Company and the other Affiliated Parties.

FUTURE TRANSACTIONS

         In connection with the IPO, the Company's Board of Directors  adopted a
policy  whereby  any future  transactions  between  the  Company  and any of its
subsidiaries,  affiliates,  officers,  directors,  principal stockholders or any
affiliates  of the foregoing  will be on terms no less  favorable to the Company
than  could  reasonably  be  obtained  in  "arm's  length"   transactions   with
independent third parties,  and any such transactions will also be approved by a
majority of the Company's disinterested outside directors.



                                       18
<PAGE>


                                     PART IV
                                     -------


ITEM 13.  EXHIBITS, FINANCIAL STATEMENT
--------  SCHEDULES AND REPORTS ON FORM 8-K.
          ----------------------------------


                                       19
<PAGE>

COMMODORE SEPARATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
Financial Statements
December 31, 2002



<PAGE>
                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                                                           Index

--------------------------------------------------------------------------------





                                                                           Page
                                                                           ----

Independent Auditors' Report                                                F-1

Balance Sheet as of December 31, 2002                                       F-2

Statement of Operations for the years ended
  December 31, 2002, and 2001, and
  cumulative amounts since inception                                        F-3

Statement of Stockholders' Deficit
  Period November 15, 1995 (date of inception)
  through December 31, 2002                                                 F-4

Statement of Cash Flows for the years ended
  December 31, 2002, and 2001, and
  cumulative amounts since inception                                        F-8

Notes to Financial Statements                                              F-10



<PAGE>
                                                    INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders
of Commodore Separation Technologies, Inc.

We have audited the balance sheet of Commodore Separation Technologies,  Inc. (a
development stage company) as of December 31, 2002 and the related statements of
operations,  stockholders'  deficit and cash flows for the years ended  December
31, 2002, and 2001, and the period from November 15, 1995 (date of inception) to
December 31, 2002.  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 auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,   the  financial   position  of  Commodore   Separation
Technologies,  Inc. (a  development  stage company) as of December 31, 2002, and
the results of its  operations  and its cash flows for the years ended  December
31, 2002, and 2001, and the period from November 15, 1995 (date of inception) to
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern.  As discussed in note 2, the Company's
significant operating losses, deficits in working capital, and net stockholders'
deficit  raise  substantial  doubt  about its  ability  to  continue  as a going
concern.  Management's  plans in regard to these  matters are also  described in
note 2. The accompanying financial statements do not include any adjustment that
might be the result from the outcome of this uncertainly.



                                        TANNER + CO.

Salt Lake City, Utah
January 24, 2003

                                                                             F-1

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)
                                                                   Balance Sheet

                                                               December 31, 2002
                                (In thousands, except shares and per share data)
--------------------------------------------------------------------------------


         Assets
         ------

Current assets:
     Cash and cash equivalents                               $               1
                                                            -------------------

                  Total current assets                       $               1
                                                            -------------------

--------------------------------------------------------------------------------

         Liabilities and Stockholders' Deficit
         -------------------------------------

Current liabilities:
     Accounts payable                                        $             280
     Accrued expenses                                                      134
     Advance deposits                                                       53
     Due to related parties                                              1,250
     Accrued dividends                                                   2,609
                                                            -------------------

                  Total current liabilities                              4,326

Commitments and contingencies

Stockholders' deficit:
     Preferred stock, Series A, $.001 par value,
       10% cumulative, 5,000,000
       shares authorized, 518,600
       shares issued and outstanding                                         1
     Preferred stock, Series B, $.001 par value,
       6% cumulative, 4,000 shares authorized,
       3,570 shares issued and outstanding                                   -
     Common stock, $.001 par value, 50,000,000
       shares authorized, 11,732,640 shares
       issued and outstanding                                               12
     Additional paid-in capital                                          9,110
     Deficit accumulated during development stage                      (13,448)
                                                            -------------------

                  Total stockholders' deficit                           (4,325)
                                                            -------------------

                  Total liabilities and stockholders'
                    deficit                                  $               1
                                                            -------------------



--------------------------------------------------------------------------------
See accompanying notes to financial statements.                              F-2

<PAGE>

<TABLE>
<CAPTION>


                                                                   COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                             (A DEVELOPMENT STAGE COMPANY)
                                                                                   Statement of Operations


                                                                                         December 31, 2002
                                                          (In thousands, except shares and per share data)
----------------------------------------------------------------------------------------------------------


                                                                                             Cumulative
                                                                                            Amounts from
                                                                                            November 15,
                                                                                            1995 (Date of
                                                               Years Ended December 31,     Inception) to
                                                            ------------------------------   December 31,
                                                                 2002           2001            2002
                                                            ----------------------------------------------

<S>                                                         <C>               <C>            <C>
 Contract revenues                                          $            -    $          -   $         403

 Costs and expenses:
      Cost of sales                                                      -               -             648
      Research and development                                           -               -           3,603
      General and administrative                                        29              95           4,511
      Impairment of inventory                                            -               -             519
      Impairment of property and equipment                               -               -             513
      Impairment of intangible assets                                    -               -             175
      Depreciation and amortization                                      -               -           1,402
      Corporate overhead expenses                                        -               -           2,145
      Sales and marketing                                                -               -             728
      Licensing fee                                                      -               -              50
                                                            ----------------------------------------------

          Total costs and expenses                                      29              95          14,294
                                                            ----------------------------------------------

          Loss from operations                                         (29)            (95)        (13,891)

 Other income                                                            -               -              27
 Interest income                                                         -               4             430
 Interest expense                                                        -               -             (14)
                                                            ----------------------------------------------

          Loss before  income taxes                                    (29)            (91)        (13,448)

 Income taxes                                                            -               -               -
                                                            ----------------------------------------------

 Net loss                                                   $          (29)   $        (91)  $     (13,448)
                                                            ----------------------------------------------

 Net loss per share -
   basic and diluted                                        $         (.05)   $       (.06)
                                                            -------------------------------

 Weighted average number of
   shares outstanding ( in thousands)                               11,733          11,677
                                                            -------------------------------

----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.                                                        F-3
</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                                                                             COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                                                       (A DEVELOPMENT STAGE COMPANY)
                                                                                                  Statement of Stockholders' Deficit

                                                                                               (In thousands, except per share data)
------------------------------------------------------------------------------------------------------------------------------------



                                Preferred Stock   Preferred Stock                                                          Total
                                   Series A          Series B          Common Stock                 Additional  Accumu-    Stock-
                                -----------------------------------------------------  Subscription  Paid-in    lated      holders'
                                Shares   Amount   Shares  Amount     Shares    Amount   Receivable    Capital   Deficit    Deficit
                                ----------------------------------------------------------------------------------------------------
<S>                             <C>      <C>      <C>     <C>      <C>         <C>     <C>          <C>         <C>        <C>
Common stock issued for cash
on November 15, 1995
(inception) at $1 per share           -  $    -        -  $    -          100  $    -  $         -  $        -  $       -  $      -

Stock split of 150,000 shares
for one share on September 5,         -       -        -       -   14,999,900      15          (15)          -          -         -
1996

Reverse stock split of 1.50
shares for one share on
November 26, 1996                     -       -        -       -   (5,000,000)     (5)           -           5          -         -

Net loss for the period from
November 15, 1995 through
June 30, 1996                         -       -        -       -            -       -            -           -        (61)      (61)
                                ----------------------------------------------------------------------------------------------------

Balance, June 30, 1996                -       -        -       -   10,000,000      10          (15)          5        (61)      (61)

Collection of subscription            -       -        -       -            -       -           15           -          -        15
receivable

Conversion of notes payable
to capital                            -       -        -       -            -       -            -         976          -       976

Proceeds from sale of common
stock and warrants                    -       -        -       -    1,500,000       1            -       6,108          -     6,109

Proceeds from sale of
preferred stock, Series A,      600,000       1        -       -            -       -            -       4,977          -     4,978
and warrants

Dividend on preferred stock,
Series A                              -       -        -       -            -       -            -        (138)         -      (138)

Net loss for the year ended
June 30, 1997                         -       -        -       -            -       -            -           -     (3,171)   (3,171)
                                ----------------------------------------------------------------------------------------------------

Balance, June 30, 1997          600,000       1        -       -   11,500,000      11            -      11,928     (3,232)    8,708


------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.                                                                                  F-4
</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                                                                             COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                                                       (A DEVELOPMENT STAGE COMPANY)
                                                                                                  Statement of Stockholders' Deficit
                                                                                                                           Continued

                                                                                               (In thousands, except per share data)
------------------------------------------------------------------------------------------------------------------------------------



                                Preferred Stock   Preferred Stock                                                          Total
                                   Series A          Series B          Common Stock                 Additional  Accumu-    Stock-
                                -----------------------------------------------------  Subscription  Paid-in    lated      holders'
                                Shares   Amount   Shares  Amount     Shares    Amount   Receivable    Capital   Deficit    Deficit
                                ----------------------------------------------------------------------------------------------------
<S>                             <C>      <C>      <C>     <C>      <C>         <C>     <C>          <C>         <C>        <C>
Issuance of common stock              -       -        -       -        3,650       -            -          10          -        10

Dividend on preferred stock,
Series A                              -       -        -       -            -       -            -        (300)         -      (300)

Net loss for the six months
ended December 31, 1997               -       -        -       -            -       -            -           -     (2,766)   (2,766)
                                ----------------------------------------------------------------------------------------------------

Balance, December 31, 1997      600,000       1        -       -   11,503,650      11            -      11,638     (5,998)    5,652
Issuance of common stock              -       -        -       -       11,925       -            -          25          -        25

Issuance of preferred stock,
Series B                              -       -    3,570       -            -       -            -         143          -       143

Gain on troubled debt                 -       -        -       -            -       -            -         214          -       214
restructuring

Dividends on preferred stock,
Series A                              -       -        -       -            -       -            -        (600)         -      (600)

Net loss for the year ended
December 31, 1998                     -       -        -       -            -       -            -           -     (3,629)   (3,629)
                                ----------------------------------------------------------------------------------------------------

Balance, December 31, 1998      600,000       1    3,570       -   11,515,575      11            -      11,420     (9,627)    1,805

Dividends on preferred stock,
Series A                              -       -        -       -            -       -            -        (600)         -      (600)

Dividends on preferred stock,
Series B                              -       -        -       -            -       -            -         (16)         -       (16)

Net loss for the year ended
December 31, 1999                     -       -        -       -            -       -            -           -     (1,746)   (1,786)
                                ----------------------------------------------------------------------------------------------------

Balance, December 31, 1999      600,000       1    3,570       -   11,515,575      11            -      10,804    (11,413)     (597)

------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.                                                                                  F-5
</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                                                                             COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                                                       (A DEVELOPMENT STAGE COMPANY)
                                                                                                  Statement of Stockholders' Deficit
                                                                                                                           Continued

                                                                                               (In thousands, except per share data)
------------------------------------------------------------------------------------------------------------------------------------



                                Preferred Stock   Preferred Stock                                                          Total
                                   Series A          Series B          Common Stock                 Additional  Accumu-    Stock-
                                -----------------------------------------------------  Subscription  Paid-in    lated      holders'
                                Shares   Amount   Shares  Amount     Shares    Amount   Receivable    Capital   Deficit    Deficit
                                ----------------------------------------------------------------------------------------------------
<S>                             <C>      <C>      <C>     <C>      <C>         <C>     <C>          <C>         <C>        <C>
Dividends on preferred stock,
Series A                              -       -        -       -            -       -            -        (578)         -      (578)

Dividends on preferred stock,
Series B                              -       -        -       -            -       -            -         (21)         -       (21)

Conversion of Series A
Preferred stock to common       (30,500)      -        -       -       81,333       -            -           -          -         -

Net loss for the year ended
December 31, 2000                     -       -        -       -            -       -            -           -     (1,915)   (1,915)
                                ----------------------------------------------------------------------------------------------------

Balance, December 31, 2000      569,500       1    3,570       -   11,596,908      11            -      10,205    (13,328)   (3,111)

Dividends on preferred stock,
Series A                              -       -        -       -            -       -            -        (533)         -      (533)

Dividends on preferred stock,
Series B                              -       -        -       -            -       -            -         (21)         -       (21)

Conversion of Series A
Preferred stock to common       (50,900)      -        -       -      135,732       1            -          (1)         -         -

Net loss for the year ended
December 31, 2001                     -       -        -       -            -       -            -           -        (91)      (91)
                                ----------------------------------------------------------------------------------------------------

Balance, December 31, 2001      518,600       1    3,570       -   11,732,640      12            -       9,650    (13,419)   (3,756)



------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.                                                                                  F-6
</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                                                                             COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                                                       (A DEVELOPMENT STAGE COMPANY)
                                                                                                  Statement of Stockholders' Deficit
                                                                                                                           Continued

                                                                                               (In thousands, except per share data)
------------------------------------------------------------------------------------------------------------------------------------



                                Preferred Stock   Preferred Stock                                                          Total
                                   Series A          Series B          Common Stock                 Additional  Accumu-    Stock-
                                -----------------------------------------------------  Subscription  Paid-in    lated      holders'
                                Shares   Amount   Shares  Amount     Shares    Amount   Receivable    Capital   Deficit    Deficit
                                ----------------------------------------------------------------------------------------------------
<S>                             <C>      <C>      <C>     <C>      <C>         <C>     <C>          <C>         <C>        <C>
Dividends on preferred stock,
Series A                              -       -        -       -            -       -            -        (519)         -      (519)

Dividends on preferred stock,
Series B                              -       -        -       -            -       -            -         (21)         -       (21)

Net loss for the year ended
December 31, 2002                     -       -        -       -            -       -            -            -       (29)      (29)
                                ----------------------------------------------------------------------------------------------------

Balance, December 31, 2002      518,600  $    1    3,570  $    -   11,732,640  $   12  $         -  $     9,110 $ (13,448) $ (4,325)
                                ----------------------------------------------------------------------------------------------------



------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.                                                                                  F-7
</TABLE>
<PAGE>

<TABLE>
<CAPTION>


                                                                   COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                             (A DEVELOPMENT STAGE COMPANY)
                                                                                  Statement of Cash Flows

                                                                     (In thousands, except per share data)
----------------------------------------------------------------------------------------------------------


                                                                                             Cumulative
                                                                                            Amounts from
                                                                                            November 15,
                                                                                            1995 (Date of
                                                                Years Ended December 31,    Inception) to
                                                               ---------------------------   December 31,
                                                                   2002           2001           2002
                                                               -------------------------------------------

<S>                                                            <C>            <C>           <C>
Cash flows from operating activities:
     Net loss                                                  $        (29)  $       (91)  $     (13,448)
     Adjustments to reconcile net loss to cash
       used in operating activities:
         Inventory impairment                                             -             -             519
         Impairment of intangibles                                        -             -             175
         Property and equipment impairment                                -             -             513
         Depreciation and amortization                                    -             -           1,402
         Issuance of Common Stock for services                            -             -              35
         Gain on troubled debt restructuring                              -             -             214
         (Increase) decrease in:
              Accounts receivable                                         -             -               -
              Inventory, net                                              -             -            (519)
         Increase (decrease) in:
              Accounts payable                                          (16)           27             280
              Accrued expenses                                            -             -             134
              Deposits                                                    -          (210)             53
                                                               -------------------------------------------

                  Net cash used in
                  operating activities                                  (45)         (274)        (10,642)
                                                               -------------------------------------------

Cash flows from investing activities:
     Acquisition of intangible assets                                     -             -            (213)
     Purchase of property and equipment                                   -             -            (403)
     Acquisition of leasehold improvements                                -             -            (210)
     Construction of technical equipment                                  -             -          (1,491)
     Liquidation of certificate of deposit                                -           233               -
                                                               -------------------------------------------

                  Net cash used in
                  investing activities                                    -           233          (2,317)
                                                               -------------------------------------------



----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.                                                        F-8
</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                                                   COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                             (A DEVELOPMENT STAGE COMPANY)
                                                                                   Statement of Cash Flows
                                                                                                 Continued

                                                                     (In thousands, except per share data)
----------------------------------------------------------------------------------------------------------


                                                                                             Cumulative
                                                                                            Amounts from
                                                                                            November 15,
                                                                                            1995 (Date of
                                                                Years Ended December 31,    Inception) to
                                                               ---------------------------   December 31,
                                                                   2002           2001           2002
                                                               -------------------------------------------

<S>                                                            <C>            <C>           <C>
Cash flows from financing activities:
     Proceeds from sale of common stock and
        warrants                                                          -             -           6,109
     Proceeds from sale of preferred stock and
        warrants                                                          -             -           4,978
     Preferred stock dividend                                             -             -            (738)
     Borrowings from stockholder                                         35            51           2,596
     Collection of subscription receivable                                -             -              15
                                                               -------------------------------------------

                  Net cash provided by
                  financing activities                                   35            51          12,960
                                                               -------------------------------------------

(Decrease) increase in cash and cash
  equivalents                                                           (10)           10               1

Cash and cash equivalents, beginning of
  period                                                                 11             1               -
                                                               -------------------------------------------

Cash and cash equivalents, end of period                       $          1   $        11   $           1
                                                               -------------------------------------------

Supplemental disclosure of cash flow information

   Cash paid during the period for:

                  Interest paid                                $          -   $         -   $          14
                                                               -------------------------------------------

                  Income taxes paid                            $          -   $         -   $           -
                                                               -------------------------------------------


Non cash investing and financing activities:

         The Company  accrued  dividends  on  preferred  stock of $540 and $554,
which were not  declared,  or paid,  for the years ending  December 31, 2002 and
2001, respectively.

         During the year ended  December  31,  2001,  50,900  shares of Series A
preferred stock were converted to 135,732 shares of common stock.


----------------------------------------------------------------------------------------------------------
                                                                                                       F-9
</TABLE>
<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)
                                                   Notes to Financial Statements

                                (In thousands, except shares and per share data)
--------------------------------------------------------------------------------

1.   Organization       Organization
     and                Commodore Separation  Technologies,  Inc. (a development
     Significant        stage  company)  (the  "Company")  was  incorporated  on
     Accounting         November  15,  1995,  under  the  laws of the  State  of
     Policies           Delaware.  Effective  February  29,  1996,  the  Company
                        acquired  the  rights  to  its  proprietary   separation
                        technology and entered into a royalty agreement with the
                        inventor of the technology as described in Note 6.

                        The Company is a process  technology  company  which has
                        developed and intends to  commercialize  its  separation
                        technology and recovery system,  known as SLiM(TM).  The
                        Company  believes  SLiM(TM)  is capable  of  effectively
                        separating and extracting various solubilized materials,
                        including  metals,   organic  chemicals,   biochemicals,
                        radionuclides and other targeted substances, from liquid
                        and possibly  gaseous process  streams.  The Company has
                        commenced  planned  principal  operations  but  has  not
                        received  significant  revenue  therefrom.  As such, the
                        Company is  considered a  development  stage  company as
                        defined in Statement of Financial  Accounting  Standards
                        ("SFAS") No. 7.

                        Cash and Cash Equivalents
                        Cash and cash  equivalents  include cash and investments
                        in money market funds with  remaining  maturities  of 90
                        days or less at the time of purchase.

                        Inventory
                        Inventory  represents  finished  goods and  consists  of
                        machinery  and  equipment   built  and  held  for  sale.
                        Inventory  is recorded at the lower of  historical  cost
                        per unit or market.

--------------------------------------------------------------------------------
                                                                            F-10
<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)
                                                   Notes to Financial Statements
                                                                       Continued

                                           (In thousands, except per share data)
--------------------------------------------------------------------------------

1.   Organization       Property and Equipment
     and                Property  and  equipment  are  stated  at  cost.   Major
     Significant        additions and  improvements  are  capitalized  and minor
     Accounting         replacements,  maintenance  and  repairs  which  do  not
     Policies           increase  the useful lives of the assets are expensed as
     Continued          incurred.  Depreciation  and  amortization  are recorded
                        using a straight-line method over estimated useful lives
                        of the  assets,  which vary from two to ten  years.  The
                        cost and  related  accumulated  depreciation  of  assets
                        sold,  retired or otherwise disposed of are removed from
                        the respective accounts,  and any resulting gain or loss
                        is included in the statement of operations.

                        Advance Deposits
                        The  Company  collected  a  $263  deposit  related  to a
                        contract  with the Port of  Baltimore.  The contract was
                        subsequently   terminated.   During  2001,  the  Company
                        reimbursed  $210 to the  Port of  Baltimore,  leaving  a
                        balance of $53 as of December 31, 2002.

                        Contract Revenues
                        In November  1997,  the Company  entered into a contract
                        with  the  State  of  Maryland  for  the   treatment  of
                        chromium-contaminated  leachate  at  the  Hawkins  Point
                        Hazardous  Waste  Treatment  Facility  at  the  Port  of
                        Baltimore.  During 1999,  the Company  commenced work on
                        this  contract and  accordingly,  has  recorded  revenue
                        related to the contract.  Costs  incurred in preparation
                        for the  commencement  of the  contract  are recorded as
                        expenses as  incurred.  As of  December  31,  2000,  the
                        contract was terminated.

                        Research and Development Expenditures
                        Research  and  development  expenditures  are charged to
                        operations as incurred.


--------------------------------------------------------------------------------
                                                                            F-11
<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)
                                                   Notes to Financial Statements
                                                                       Continued

                                           (In thousands, except per share data)
--------------------------------------------------------------------------------


1.   Organization       Income Taxes
     and                Income taxes are determined in accordance with Statement
     Significant        of Financial  Accounting  Standards  ("SFAS") 109, which
     Accounting         requires  recognition of deferred income tax liabilities
     Policies           and assets for the expected  future tax  consequences of
     Continued          events  that  have  been   included  in  the   financial
                        statements or tax returns.  Under this method,  deferred
                        income tax liabilities  and assets are determined  based
                        on the difference  between  financial  statement and tax
                        bases of assets and liabilities  using enacted tax rates
                        in  effect  for the year in which  the  differences  are
                        expected  to  reverse.  SFAS 109 also  provides  for the
                        recognition  of deferred tax assets if it is more likely
                        than not that the  assets  will be  realized  in  future
                        years.

                        Concentration of Credit Risk
                        The Company  maintains its cash in bank deposit accounts
                        which, at times,  may exceed  federally  insured limits.
                        The  Company  has not  experienced  any  losses  in such
                        accounts.  The Company believes it is not exposed to any
                        significant credit risk on cash and cash equivalents.

                        Impairment of Long-Lived Assets
                        The  Company  periodically   performs  analyses  on  the
                        recoverability of long-lived  assets.  Any excess of the
                        carrying  amount of an asset over the  estimated  future
                        undiscounted  cash flows associated with the asset would
                        be recorded as an  impairment  loss in the  statement of
                        operations.

                        Stock Compensation
                        At December  31, 2002,  the Company has one  stock-based
                        employee  compensation  plan,  which is  described  more
                        fully in Note 8. The  Company  accounts  for those plans
                        under the recognition and measurement  principles of APB
                        Opinion  No.  25,   Accounting   for  Stock   Issued  to
                        Employees, and related  Interpretations.  No stock-based
                        employee  compensation cost is reflected in net loss, as
                        all  options  granted  under those plans had an exercise
                        price that  equaled or exceeded  the market value of the
                        underlying  common  stock  on the  date  of  grant.  The
                        following  table  illustrates the effect on net loss and
                        earnings  per share if the  company had applied the fair
                        value  recognition  provision of FASB Statement No. 123,
                        Accounting for Stock-Based Compensation,  to stock-based
                        employee compensation.


--------------------------------------------------------------------------------
                                                                            F-12
<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)
                                                   Notes to Financial Statements
                                                                       Continued

                                           (In thousands, except per share data)
--------------------------------------------------------------------------------

1.   Organization
     and
     Significant
     Accounting
     Policies
     Continued                                                 Cumulative
                                                              Amount since
                                  Years Ended December 31,     Inception
                                 ------------------------------------------
                                      2002          2001
                                 ------------------------------------------

 Net loss, as reported           $         (29) $       (91) $     (13,448)
 Deduct:
    Total stock- based employee
    compensation expense
    determined under fair value
    based method for all
    awards, net of related
    tax effects                              -            -         (5,490)
                                 ------------------------------------------

 Pro forma net loss              $         (29) $       (91) $     (18,938)
                                 ------------------------------------------

 Earnings per share:
    Basic and diluted  -
      as reported                $        (.05) $      (.06)
                                 ----------------------------

    Basic and diluted  -
      pro forma                  $        (.05) $      (.06)
                                 ----------------------------

                        Use of Accounting Estimates
                        The  preparation  of financial  statements in conformity
                        with  accounting  principles  generally  accepted in the
                        United  States of America  requires  management  to make
                        estimates  and  assumptions  that  affect  the  reported
                        amounts  of assets and  liabilities  and  disclosure  of
                        contingent  assets  and  liabilities  at the date of the
                        financial   statements  and  the  reported   amounts  of
                        revenues  and  expenses  during  the  reporting  period.
                        Actual results could differ from those estimates.

2.   Going              The accompanying financial statements have been prepared
     Concern            under the assumption that the Company will continue as a
                        going  concern.   Such   assumption   contemplates   the
                        realization   of   assets   and  the   satisfaction   of
                        liabilities  in the normal course of business.  As shown
                        in the financial  statements,  the Company has a working
                        capital  deficit,  a deficit  in  equity,  has  incurred
                        substantial losses from operations and has not generated
                        cash from operating activities. The Company has not ever
                        had significant  revenue from operations and has not had
                        any  operating  activities  during  the past two  fiscal
                        years.  Presently,  the Company does not have sufficient
                        cash resources to meet its  requirements  in 2003 or the
                        necessary   working   capital  to   develop   profitable
                        operations  from  using  its  patented  technology.  The
                        financial statements do not include any adjustments that
                        might be  necessary  should  the  Company  be  unable to
                        continue as a going concern.

--------------------------------------------------------------------------------
                                                                            F-13
<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)
                                                   Notes to Financial Statements
                                                                       Continued

                                           (In thousands, except per share data)
--------------------------------------------------------------------------------

2.   Going              The  Company's   continuation  as  a  going  concern  is
     Concern            dependent   upon  its   ability  to  obtain   additional
     Continued          financing as may be required,  and  ultimately to attain
                        profitability.  Potential  sources of cash  include  new
                        contracts,  the issuance of external  debt,  the sale of
                        new shares of Company stock or alternative  methods such
                        as mergers or sale  transactions.  No assurances  can be
                        given,  however, that the Company will be able to obtain
                        any of these potential sources of cash.


3.   Earnings Per       Basic  earnings  per share are  computed by dividing net
     Share              loss  available to common  shareholders  by the weighted
                        average number of shares  outstanding during the period.
                        Diluted loss per share are  computed  using the weighted
                        average  number  of  shares  determined  for  the  basic
                        computation  plus the  number of shares of common  stock
                        that would be issued assuming all contingently  issuable
                        shares  having a dilutive  effect on earnings  per share
                        were outstanding for the period.

                                                 Years Ended December 31,
                                                ---------------------------
                                                     2002          2001
                                                ---------------------------

 Net loss                                       $         (29) $        (91)
 Dividends on Series A Preferred  Stock
   (not declared)                                        (519)         (533)
 Dividends on  Series B Preferred Stock
   (not declared)                                         (21)          (21)
                                               ----------------------------

 Net loss applicable to common shareholders     $        (569) $       (645)
                                                ---------------------------
 Weighted average common shares
   outstanding (basic)                             11,733,000    11,677,000
 Convertible preferred stock                          (*)           (*)
 Warrants issued in initial public offering           (*)           (*)
 Employee stock options                               (*)           (*)
                                                ---------------------------

 Weighted average common shares
   outstanding (diluted)                           11,733,000    11,677,000
                                                ---------------------------

 Loss per share - basic and diluted             $        (.05) $       (.06)
                                                ---------------------------

                        (*) Due to the Company's loss from continuing operations
                        the incremental shares issuable in connection with these
                        instruments  are   anti-dilutive   and  accordingly  not
                        considered in the calculation.

--------------------------------------------------------------------------------
                                                                            F-14
<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)
                                                   Notes to Financial Statements
                                                                       Continued

                                           (In thousands, except per share data)
--------------------------------------------------------------------------------


4.   Related Party      The Company has a payable of $179 to  Commodore  Applied
     Transactions       Technologies,  Inc.  (Applied)  as of December 31, 2002.
                        The   Company   also   has  a   payable   to   Commodore
                        Environmental Services, Inc. (Environmental) for $1,071,
                        for   uncollateralized    advances   to   the   Company.
                        Environmental  has  direct  ownership  interests  in the
                        Company. Applied is a former majority stockholder in the
                        Company.

5.   Income Taxes       The  Company  provides  for  deferred  income  taxes  on
                        temporary  differences  which  represent  tax effects of
                        transactions   reported  for  tax  purposes  in  periods
                        different than for book purposes. The difference between
                        the income tax benefit at  statutory  rates for 2002 and
                        2001  and  the  amount   presented   in  the   financial
                        statements  is due to the  change  in the tax  valuation
                        allowance  which  offsets  the income tax benefit of the
                        operating loss.

                        The  provision  for  income  taxes  which  differs  from
                        federal income tax rates is as follows:


                                                              Cumulative
                                  Years Ended December 31,      Amounts
                                 ----------------------------    Since
                                      2002          2001       Inception
                                 ------------------------------------------

 Expected tax benefit at
   federal statutory rate        $     (10)    $    (31)   $     (4,182)
 State income tax benefits,
 net of federal income tax
   benefit                              (2)          (4)           (738)
 Change in valuation allowance          12           35           4,920
                                 ------------------------------------------

 Income taxes                    $       -     $      -    $          -
                                 ------------------------------------------

                        The  components  of  net  deferred  income  taxes  as of
                        December 31, 2002 are as follows:




                        Net operating loss carryforward        $          4,920
                        Less: valuation allowance                        (4,920)
                                                               -----------------

                        Net deferred tax asset                 $              -
                                                               -----------------

--------------------------------------------------------------------------------
                                                                            F-15
<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)
                                                   Notes to Financial Statements
                                                                       Continued

                                           (In thousands, except per share data)
--------------------------------------------------------------------------------

5.   Income Taxes       The  Company  conducts  a  periodic  examination  of its
     Continued          valuation   allowance.   Factors   considered   in   the
                        evaluation  include recent and expected  future earnings
                        and the Company's  liquidity and equity  positions.  For
                        the years ended  December 31, 2002 and 2001, the Company
                        has  established  a valuation  allowance  for the entire
                        amount of net deferred tax assets.

                        At  December  31,   2002,   the  Company  had  tax  loss
                        carryforwards  of approximately  $12,300.  The amount of
                        and  ultimate   realization  of  benefit  from  the  net
                        operating loss for income tax purposes is dependent,  in
                        part,  upon the tax laws in effect,  future  earnings of
                        the  Company,  and other future  events,  the effects of
                        which cannot be determined. The change in control of the
                        Company  that took place in  September  1998 could limit
                        the  Company's  ability  to  utilize  all prior tax loss
                        carryforwards.  These net operating  loss  carryforwards
                        begin to expire in 2011.

6.   Royalty            The Company has an  agreement  with a former  officer of
     Agreements         the Company  pursuant to which the former  officer is to
                        receive a royalty of 2% of collected  revenues  from the
                        Company's  membrane   separation   technology   directly
                        attributable to his patentable property through December
                        3,  2002,   except  for  applications   related  to  the
                        radionuclides  technetium  and  rhenium,  for  which the
                        former  officer is entitled to receive a royalty of .66%
                        of net sales  directly  attributable  to his  patentable
                        property  (less   allowances  for  returns,   discounts,
                        commissions,  freight  and  excise or other  taxes).  No
                        royalties have been earned or accrued as of December 31,
                        2002.

                        The Company also has a license  agreement  with Lockheed
                        Martin Energy Research  Corporation,  manager of the Oak
                        Ridge National  Laboratory,  a U.S. Department of Energy
                        national laboratory, for which the Company paid Lockheed
                        Martin a $50  licensing  fee  during the year ended June
                        30, 1997.  Under this  agreement,  Lockheed Martin is to
                        receive  a royalty  of 2% of net sales of the  Company's
                        products or processes  covered under the agreement (less
                        allowances for returns, discounts, commissions, freight,
                        and  excise  or other  taxes)  up to total  net sales of
                        $4,000 and 1% of net sales thereafter.  In addition, the
                        Company  has  agreed  to  guarantee   Lockheed   Martin,
                        commencing in the third year of the agreement, an annual
                        minimum  royalty of $15. As of December 31, 2002, $30 of
                        royalties have been accrued.

--------------------------------------------------------------------------------
                                                                            F-16
<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)
                                                   Notes to Financial Statements
                                                                       Continued

                                           (In thousands, except per share data)
--------------------------------------------------------------------------------

7.   Capital            Preferred Stock, Series A
     Structure          The  Convertible  Preferred  Stock,  Series A, has a par
                        value of $.001 per  share  and a stated  value of $10.00
                        per share.  Cumulative dividends are payable at the rate
                        of  $1.00  per  share  per  annum,   payable  quarterly,
                        commencing  June 30, 1997,  when, and if declared by the
                        Board of Directors, before any dividends are declared or
                        paid on the Common  Stock or any capital  stock  ranking
                        junior to the  Convertible  Preferred  Stock,  Series A.
                        Failure to pay any  quarterly  dividend will result in a
                        reduction of the conversion price as described below.

                        The   Convertible   Preferred   Stock,   Series   A,  is
                        convertible  into  Common  Stock  at any  time  prior to
                        redemption at a conversion rate of 1.67 shares of Common
                        Stock for each share of Convertible  Preferred Stock (an
                        effective  conversion price of $6.00 per share of Common
                        Stock),    subject   to    adjustment    under   certain
                        circumstances,  including  the failure of the Company to
                        pay a  dividend  on  the  Convertible  Preferred  Stock,
                        Series A,  within 30 days of a  dividend  payment  date,
                        which will result each  instance in a reduction  of $.50
                        per share in the  conversion  price but not below  $3.75
                        per share.  Since June of 1998 the  Company has not paid
                        dividends,  and  therefore  has adjusted  the  effective
                        conversion   price   from  $6.00  to  $3.75  per  share.
                        Accumulated  and unpaid  dividends  at December 31, 2002
                        amounted to $2,530,  an amount equal to $4.60 per share.
                        Dividends   will  not  be   declared   until  there  are
                        sufficient accumulated earnings.

                        The Convertible Preferred Stock, Series A is redeemable,
                        in whole but not in part,  by the  Company  upon 30 days
                        prior  written  notice  after  April 3,  2000 at $10 per
                        share, plus accumulated and unpaid  dividends,  provided
                        the closing  bid price of the Common  Stock for at least
                        20  consecutive  trading  days  ending  not more than 10
                        trading  days  prior  to  the  date  of  the  notice  of
                        redemption  equals or  exceeds  $10 per share or,  after
                        April 3, 2001,  at certain cash  redemption  prices plus
                        accumulated and unpaid dividends.


--------------------------------------------------------------------------------
                                                                            F-17
<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)
                                                   Notes to Financial Statements
                                                                       Continued

                                           (In thousands, except per share data)
--------------------------------------------------------------------------------

7.   Capital            Preferred Stock, Series A - Continued
     Structure          The holders of Convertible  Preferred  Stock,  Series A,
     Continued          have  the  right,  voting  as a  class,  to  approve  or
                        disapprove  of the  issuance  of any  class or series of
                        stock  ranking  senior  to,  or on a  parity  with,  the
                        Convertible  Preferred Stock,  Series A, with respect to
                        declaration and payment of dividends or the distribution
                        of assets on liquidation,  dissolution or winding-up. In
                        addition,  if the company  fails to pay dividends on the
                        Convertible   Preferred   Stock,   Series  A,  for  four
                        consecutive quarterly dividend payment periods,  holders
                        of  Convertible   Preferred  Stock,   Series  A,  voting
                        separately  as a class  will be  entitled  to elect  one
                        director; such voting right will be terminated as of the
                        next  annual  meeting  of  stockholders  of the  Company
                        following payment of all accrued dividends.

                        Upon  liquidation,  dissolution  or  winding  up of  the
                        company,  holders of Convertible Preferred Stock, Series
                        A, are  entitled  to receive  liquidation  distributions
                        equivalent to $10 per share (plus accumulated and unpaid
                        dividends)  before  any  distribution  to holders of the
                        Common Stock or any capital stock ranking  junior to the
                        convertible Preferred Stock, Series A.

                        Preferred Stock, Series B
                        In December  1998,  the Company  issued  3,570 shares of
                        Preferred Stock, Series B. The Preferred Stock, Series B
                        ranks junior to Preferred Stock,  Series A and senior to
                        Common Stock.

                        The  Convertible  Preferred  Stock,  Series B, has a par
                        value of $.001 per share and a stated  value of $100 per
                        share.  Cumulative  dividends are payable at the rate of
                        $6 per share per annum,  payable  quarterly  in arrears,
                        commencing  June 30, 1999,  when, and if declared by the
                        Board of Directors, before any dividends are declared or
                        paid on the Common  Stock or any capital  stock  ranking
                        junior to the Convertible Preferred Stock, Series B. The
                        Company  has not paid  any  dividends  on these  shares.
                        Accumulated  and unpaid  dividends  at December 31, 2002
                        amounted to approximately $79, an amount equal to $22.25
                        per share.


--------------------------------------------------------------------------------
                                                                            F-18
<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)
                                                   Notes to Financial Statements
                                                                       Continued

                                           (In thousands, except per share data)
--------------------------------------------------------------------------------


7.   Capital            Preferred Stock, Series B - Continued
     Structure          The Convertible Preferred Stock, Series B is convertible
     Continued          into Common Stock at any time prior to  redemption  at a
                        conversion  rate of 666.67  shares  of Common  Stock for
                        each share of Convertible  Preferred Stock, Series B (an
                        effective  conversion  price of $.15 per share of Common
                        Stock),    subject   to    adjustment    under   certain
                        circumstances.

                        The   Convertible   Preferred   Stock,   Series   B,  is
                        redeemable, in whole but not in part, by the Company not
                        less than 30 nor more than 60 days prior to the Business
                        Day designated by written notice as the Redemption  Date
                        at  $105  per  share,   plus   accumulated   and  unpaid
                        dividends.

                        The holders of Convertible  Preferred  Stock,  Series B,
                        have  the  right,  voting  as a  class,  to  approve  or
                        disapprove  of the  issuance  of any  class or series of
                        stock  ranking  senior  to,  or on a  parity  with,  the
                        Convertible Preferred Stock.

                        Upon  liquidation,  dissolution  or  winding  up of  the
                        Company,  holders  of  Convertible  Preferred  Stock are
                        entitled to receive liquidation distributions equivalent
                        to  $100  per  share   (plus   accumulated   and  unpaid
                        dividends)  before  any  distribution  to holders of the
                        Common Stock or any capital stock ranking  junior to the
                        convertible Preferred Stock, Series B.

                        Warrants
                        Each Warrant entitled the holder thereof to purchase, at
                        any time from April 3, 1998 through  April 3, 2002,  one
                        share of  Common  Stock at a price of $5.50  per  share,
                        subject to adjustment.  Commencing  October 3, 1998, the
                        Warrants were subject to  redemption by the Company,  in
                        whole but not in part,  at $.10 per  Warrant  on 30 days
                        prior written notice  provided that the average  closing
                        sale price of the Common Stock equals or exceeds $15 per
                        share,  subject to  adjustment,  for any 20 trading days
                        within a period of 30 consecutive trading days ending on
                        the fifth trading day prior to the date of the notice of
                        redemption.  As of December  31, 2002 all  warrants  had
                        expired without any being exercised or redeemed.

--------------------------------------------------------------------------------
                                                                            F-19
<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)
                                                   Notes to Financial Statements
                                                                       Continued

                                           (In thousands, except per share data)
--------------------------------------------------------------------------------

7.   Capital            Representative's Warrants
     Structure          In  connection  with the Initial  Public  Offering,  the
     Continued          Company sold to the  Underwriter for $.0001 per warrant,
                        warrants  to  purchase  from the  Company  up to  60,000
                        shares of Convertible Preferred Stock, 150,000 shares of
                        Common    Stock    and/or    210,000    Warrants    (the
                        "Representative's   Warrants").   The   Representative's
                        Warrants were exercisable at a price of $12 per share of
                        Convertible  Preferred  Stock,  $6 per  share of  Common
                        Stock and $.12 per  Warrant  from April 3, 1998  through
                        April 3, 2002, and were restricted from sale,  transfer,
                        assignment or hypothecation  prior to that date,  except
                        to officers  of the  Underwriter.  The  Representative's
                        Warrants  provided  for  adjustment  in  the  number  of
                        securities  issuable  upon  the  exercise  thereof  as a
                        result of certain  subdivisions  and combinations of the
                        Common Stock. The  Representative's  Warrants granted to
                        the holders thereof  certain rights of registration  for
                        the  securities  issuable upon exercise  thereof.  As of
                        December  31,  2002 all  Representative's  Warrants  had
                        expired without any being exercised.

8.   Non-Qualified      Under the 1998  Non-Qualified  Stock Option  Plan,  (the
     Stock Option       Option  Plan),  a maximum of  2,000,000  options  may be
     Plan               granted to purchase common stock at prices generally not
                        less than the fair market  value of common  stock at the
                        date of grant.  Under the Option Plan, grants of options
                        may  be  made  to  employees,  officers,  and  directors
                        without regard to any performance measures.  The options
                        may be immediately  exercisable or may vest over time as
                        determined by the Board of Directors.


--------------------------------------------------------------------------------
                                                                            F-20
<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)
                                                   Notes to Financial Statements
                                                                       Continued

                                           (In thousands, except per share data)
--------------------------------------------------------------------------------

8.   Non-Qualified      Information  regarding  the  option  plan is  summarized
     Stock Option       below:
     Plan
     Continued                                                      Weighted
                                                                     Average
                                                       Number of    Exercise
                                                        Options       Price
                                                     --------------------------

 Outstanding at year ended June 30, 1997                   996,689  $     4.42
      Granted                                            1,042,252        4.31
      Exercised                                                  -
      Forfeited                                                  -
      Rescinded                                           (996,689)       4.42
                                                     --------------------------
  Outstanding at six months ended December 31, 1997      1,042,252        4.31
      Granted                                            1,461,950        0.19
      Exercised                                                  -
      Forfeited                                                  -
      Rescinded                                         (1,092,252)       4.14
                                                     --------------------------
 Outstanding at year ended December 31, 1998             1,411,950        0.19
      Granted                                                    -
      Exercised                                                  -
      Forfeited                                            (80,900)       0.10
      Rescinded                                                  -
                                                      --------------------------
 Outstanding at year ended December 31, 1999             1,331,050        0.19
      Granted                                                    -
      Exercised                                                  -
      Forfeited                                           (507,300)       0.09
      Rescinded                                                  -
                                                     --------------------------
 Outstanding at year ended December 31, 2000               823,750        0.24
      Granted                                                    -
      Exercised                                                  -
      Forfeited                                                  -
      Rescinded                                                  -
                                                      --------------------------
 Outstanding at year ended December 31, 2001               823,750        0.24
      Granted                                                    -
      Exercised                                                  -
      Forfeited                                                  -
      Rescinded                                                  -
                                                     --------------------------

 Outstanding at year ended December 31, 2002               823,750  $     0.24
                                                     --------------------------



--------------------------------------------------------------------------------
                                                                            F-21
<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)
                                                   Notes to Financial Statements
                                                                       Continued

                                           (In thousands, except per share data)
--------------------------------------------------------------------------------


8.   Non-Qualified      Options exercisable and available for future grant as of
     Stock Option       December 31, 2002 are as follows:
     Plan
     Continued             Options exercisable                     823,750

                           Options available for grant           1,176,250


9.   Stock Based        The Company has adopted the  disclosure-only  provisions
     Compensation       of Statement of Financial  Accounting  Standards  (SFAS)
                        No.  123,   Accounting  for  Stock-Based   Compensation.
                        Accordingly, no compensation cost has been recognized in
                        the  financial  statements.   SFAS  123  requires  stock
                        options  to be  valued  using  an  approach  such as the
                        Black-Scholes  option pricing model.  The  Black-Scholes
                        model  calculates the fair value of the grant based upon
                        certain  assumptions  about  the  underlying  stock.  No
                        options  were  granted  in 2002 or 2001,  and  therefore
                        there is no pro forma  effect on net  earnings per share
                        for the years ended December 31, 2002 and 2001.

                        The following table summarizes  information  about stock
                        options outstanding at December 31, 2002:


                Options Outstanding                   Options Exercisable
 ----------------------------------------------------------------------------
                              Weighted
                              Average    Weighted                 Weighted
   Range of      Number      Remaining   Average                  Average
   Exercise    Outstanding  Contractual  Exercise      Number     Exercise
    Prices     at 12/31/02  Life (Years)   Price     Exercisable    Price
 ----------------------------------------------------------------------------

 $       5.00        25,000         5.96  $    5.00        25,000 $     5.00
 $        .09       798,750         5.96  $     .09       798,750 $      .09
 ----------------------------------------------------------------------------

 $   .09-5.00       823,750         5.96  $     .24       823,750 $      .24
 ----------------------------------------------------------------------------


10.  Commitments        Claim
     and                The Company has a matter of possible  litigation arising
     Contingencies      out of the Port of Baltimore  contract.  It is not known
                        what  amount if any that the  Company may be required to
                        pay. The December 31, 2002 financial  statements reflect
                        $53 as a liability  related to the  contract.  It is not
                        known  if  any  additional  amounts  will  be  incurred.


--------------------------------------------------------------------------------
                                                                            F-22
<PAGE>

                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)
                                                   Notes to Financial Statements
                                                                       Continued

                                           (In thousands, except per share data)
--------------------------------------------------------------------------------

11.  Recent             Recent Accounting Pronouncements
     Accounting         In June 2001,  the FASB issued  Statement  of  Financial
     Pronounce-         Accounting  Standards  No.  143,  "Accounting  for Asset
     ments              Retirement   Obligations".   This  Statement   addresses
                        financial   accounting  and  reporting  for  obligations
                        associated  with the  retirement of tangible  long-lived
                        assets and the associated asset retirement  costs.  This
                        Statement is effective for financial  statements  issued
                        for fiscal years  beginning  after June 15,  2002.  This
                        Statement addresses  financial  accounting and reporting
                        for the disposal of  long-lived  assets.  The Company is
                        currently assessing the impact of this statement.

                        In  April 2002,  the FASB issued  Statement of Financial
                        Accounting Standards (SFAS) No. 145, "Rescission of FASB
                        Statements   No. 4,   44,  and  64,  Amendment  of  FASB
                        Statement  No. 13,  and  Technical   Corrections."  This
                        statement requires the classification of gains or losses
                        from the extinguishments of debt to meet the criteria of
                        Accounting  Principles  Board Opinion No. 30 before they
                        can  be  classified  as   extraordinary  in  the  income
                        statement.   As  a  result,   companies  that  use  debt
                        extinguishment  as part of their risk management  cannot
                        classify  the gain or loss from that  extinguishment  as
                        extraordinary.     The    statement     also    requires
                        sale-leaseback     accounting    for    certain    lease
                        modifications  that have  economic  effects  similar  to
                        sale-leaseback transactions. The Company does not expect
                        Adoption  of SFAS No. 145 did have a material  impact on
                        financial position or future operations.

                        In June 2002, the FASB issued SFAS No. 146,  "Accounting
                        for Costs Associated with Exit or Disposal  Activities."
                        This  standard,  which is effective for exit or disposal
                        activities  initiated after December 31, 2002,  provides
                        new  guidance  on  the   recognition,   measurement  and
                        reporting of costs associated with these activities. The
                        standard   requires   companies   to   recognize   costs
                        associated  with exit or disposal  activities  when they
                        are incurred rather than at the date the company commits
                        to an exit or disposal  plan.  The  adoption of SFAS No.
                        146 by the  Company is not  expected  to have a material
                        impact on the  Company's  financial  position  or future
                        operations.


--------------------------------------------------------------------------------
                                                                            F-23

<PAGE>

                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)
                                                   Notes to Financial Statements
                                                                       Continued

                                           (In thousands, except per share data)
--------------------------------------------------------------------------------

11.  Recent             Recent Accounting Pronouncements - Continued
     Accounting         In  December   2002,   the  FASB  issued  SFAS  No.  148
     Pronounce-         "Accounting for Stock-Based Compensation--Transition and
     ments              Disclosure--an  amendment  of FASB  Statement  No. 123,"
     Continued          which is  effective  for all fiscal  years  ending after
                        December  15, 2002.  SFAS No. 148  provides  alternative
                        methods of transition for a voluntary change to the fair
                        value  based  method  of  accounting   for   stock-based
                        employee  compensation  under  SFAS  No.  123  from  the
                        intrinsic value based method of accounting prescribed by
                        Accounting  Principles  Board  Opinion  No. 25. SFAS 128
                        also changes the  disclosure  requirements  of SFAS 123,
                        requiring a more  prominent  disclosure of the pro-forma
                        effect of the fair value based method of accounting  for
                        stock-based  compensation.  The adoption of SFAS No. 148
                        by the  Company  did not have a  material  impact on the
                        Company's financial position or future operations.

                        In January  2003,  the  Financial  Accounting  Standards
                        Board (FASB) issued Interpretation No. 46, Consolidation
                        of  Variable   Interest   Ethics  (FIN  No.  46),  which
                        addresses   consolidation  by  business  enterprises  of
                        variable  interest  entities.  FIN No. 46 clarifies  the
                        application  of  Accounting  Research  Bulletin  No. 51,
                        Consolidated  Financial Statements,  to certain entities
                        in   which   equity    investors   do   not   have   the
                        characteristics  of a controlling  financial interest or
                        do not have sufficient  equity at risk for the entity to
                        finance its activities without  additional  subordinated
                        financial support from other parties. FIN No. 46 applies
                        immediately to variable  interest entities created after
                        January 31, 2003, and to variable  interest  entities in
                        which an enterprise obtains an interest after that date.
                        It applies in the first  fiscal  year or interim  period
                        beginning  after June 15,  2003,  to  variable  interest
                        entities  in  which  an  enterprise   holds  a  variable
                        interest that it acquired  before  February 1, 2003. The
                        Company   does  not  expect  to  identify  any  variable
                        interest  entities  that  must be  consolidated.  In the
                        event a  variable  interest  entity is  identified,  the
                        Company does not expect the  requirements  of FIN No. 46
                        to have a material impact on its financial  condition or
                        results of operations.

                        In November 2002, the FASB issued Interpretation No. 45,
                        Guarantor's  Accounting and Disclosure  Requirements for
                        Guarantees,    Including    Indirect    Guarantees    of
                        Indebtedness of Others (FIN No. 45). FIN No. 45 requires
                        certain  guarantees to be recorded at fair value,  which
                        is different from current practice to record a liability
                        only when a loss is probable and  reasonably  estimable,
                        as those  terms are  defined  in FASB  Statement  No. 5,
                        Accounting for  Contingencies.  FIN No. 45 also requires
                        the Company to make  significant new  disclosures  about
                        guarantees.  The disclosure  requirements  of FIN No. 45
                        are  effective  for the Company in the first  quarter of
                        fiscal year 2003. FIN No. 45's initial  recognition  and
                        initial  measurement  provisions  are  applicable  on  a
                        prospective basis to guarantees issued or modified after
                        December 31, 2002. The Company's previous accounting for
                        guarantees  issued  prior  to the  date  of the  initial
                        application  of  FIN  No.  45  will  not be  revised  or
                        restated  to reflect  the  provisions  of FIN No 45. The
                        Company  does not expect the  adoption  of FIN No. 45 to
                        have a  material  impact on its  consolidated  financial
                        position, results of operations or cash flows.


--------------------------------------------------------------------------------
                                                                            F-24

<PAGE>

Exhibits.
--------

Exhibit No.                          Description
-----------                          -----------

    1.1             Form of  Underwriting  Agreement  between  the  Company  and
                    National  Securities  Corporation,  as Representative of the
                    several      Underwriters      listed      therein      (the
                    "Representative").(5)

    3.1             Restated Certificate of Incorporation of the Company.(1)

    3.2             By-Laws of the Company.(1)

    4.1             Specimen Common Stock Certificate.(2)

    4.2             Form  of   Warrant   Agreement   among  the   Company,   the
                    Representative and the Bank of New York.(5)

    4.3             Specimen Warrant Certificate.(3)

    4.4             Form  of  Representative's  Warrant  Agreement  between  the
                    Company   and   the   Representative,   including   form  of
                    Representative's Warrant therein.(5)

    4.5             Specimen Convertible Preferred Stock Certificate.(3)

    4.6             Form of Certificate of  Designation,  Preferences and Rights
                    of 10% Senior Convertible  Redeemable Preferred Stock of the
                    Company.(6)

                                       20
<PAGE>

    4.7             Certificate of Designation, Preferences and Rights of Series
                    B  Convertible  Redeemable  Preferred  Stock of the Company.
                    (10)

    10.1            Employment  Agreement,  dated as of August 1, 1996,  between
                    the Company and Alan R. Burkart.(1)

    10.2            Employment Agreement, dated as of September 1, 1996, between
                    the Company and Carl O. Magnell.(1)

    10.3            Employment Agreement, dated as of September 1, 1996, between
                    the Company and James M. DeAngelis.(1)

    10.4            Employment Agreement, dated as of September 1, 1996, between
                    the Company and Srinivas Kilambi, Ph.D.(1)

    10.5            Employment Agreement, dated as of September 1, 1996, between
                    the Company and Michael D. Kiehnau.(1)

    10.6            1996 Stock Option Plan of the Company.(1)

    10.7            Executive Bonus Plan of the Company.(1)

    10.8            Memorandum of Understanding,  dated August 30, 1996, between
                    the Company and Teledyne  Brown  Engineering,  a Division of
                    Teledyne Industries, Inc., as amended.(1) and (5)

    10.9            Memorandum of Understanding,  dated August 29, 1996, between
                    the Company and Sverdrup Environmental, Inc., as amended.(1)
                    and (5)

    10.10           Services  Agreement,  dated  August 31,  1996,  between  the
                    Company and Commodore CFC Technologies, Inc.(1)

    10.11           Assignment of Technology Agreement,  dated as of December 4,
                    1995,  by  and  between  the  Company  (formerly   Commodore
                    Membrane Technologies, Inc.) and Srinivas Kilambi, Ph.D.(1)

    10.12           Employment Agreement,  dated as of October 31, 1996, between
                    Environmental and Edwin L. Harper, Ph.D.(3)

    10.13           Undivided Rights (Sole Commercial) License Agreement,  dated
                    January 5, 1997,  between  Lockheed  Martin Energy  Research
                    Corporation and the Company.(3)

    10.14           Stock Purchase  Agreement,  dated as of December 2, 1996, by
                    and between Environmental and Applied.(3)

    10.15           Form of Revolving Credit  Agreement  between the Company and
                    Environmental.(5)

    10.16           Employment Agreement,  dated as of January 27, 1997, between
                    the Company and Kenneth J. Houle.(4)

    10.17           Employment Agreement, dated as of November 18, 1996, between
                    Environmental and Paul E. Hannesson.(7)

    10.18           Employment   Agreement,   dated   May   7,   1997,   between
                    Environmental and Michael D. Fullwood.(7)

    10.19           Equipment Lease,  dated as of November 25, 1997, between the
                    Company and Maryland Environmental Service.(8)

    10.20           License  Agreement,  dated as of November 25, 1997,  between
                    the Company and Maryland Environmental Service.(8)

    10.21           Equipment Lease,  dated as of February 5, 1998,  between the
                    Company and Maryland Environmental Service.(8)

    10.22           License Agreement,  dated as of February 5, 1998 between the
                    Company and Maryland Environmental Service.(8)

                                       21
<PAGE>

    10.23           Debt  repayment  agreement,  dated as of September  28, 1998
                    between Environmental and Applied.(9)

    22.1            Subsidiaries of the Company.(1)

    *99.1           Certification Pursuant to 18 U.S.C. Section 1350, as adopted
                    pursuant by section 906 of the  Sarbanes-Oxley Act of 2002 -
                    Bentley Blum

    *99.2           Certification Pursuant to 18 U.S.C. Section 1350, as adopted
                    pursuant by section 906 of the  Sarbanes-Oxley Act of 2002 -
                    Andrew Oddi

--------------------------

* Filed herewith.

    (1)     Incorporated  herein by  reference  and filed as an  Exhibit  to the
            Registrant's  Registration  Statement  on Form  S-1  filed  with the
            Securities  and Exchange  Commission on September 12, 1996 (File No.
            333-11813) (the "Registration Statement").

    (2)     Incorporated  herein  by  reference  and  filed  as  an  Exhibit  to
            Amendment  No.  1 to  the  Registration  Statement  filed  with  the
            Securities and Exchange Commission on October 18, 1996.

    (3)     Incorporated  herein  by  reference  and  filed  as  an  Exhibit  to
            Amendment  No.  3 to  the  Registration  Statement  filed  with  the
            Securities and Exchange Commission on January 23, 1997.

    (4)     Incorporated  herein  by  reference  and  filed  as  an  Exhibit  to
            Amendment  No.  4 to  the  Registration  Statement  filed  with  the
            Securities and Exchange Commission on January 28, 1997.

    (5)     Incorporated  herein  by  reference  and  filed  as  an  Exhibit  to
            Amendment  No.  5 to  the  Registration  Statement  filed  with  the
            Securities and Exchange Commission on March 13, 1997.

    (6)     Incorporated  herein  by  reference  and  filed  as  an  Exhibit  to
            Amendment  No.  6 to  the  Registration  Statement  filed  with  the
            Securities and Exchange Commission on March 25, 1997.

    (7)     Incorporated  herein by  reference  and filed as an  Exhibit  to the
            Company's  Annual Report on Form 10-K for the fiscal year ended June
            30, 1997.

    (8)     Incorporated  herein by  reference  and filed as an  Exhibit  to the
            Company's  Transition  Report on Form 10-K for the six months  ended
            December 31, 1997.

    (9)     Incorporated  herein by  reference  and filed as an  Exhibit  to the
            Company's  Form 8-K  dated  December  25,  1998 and  filed  with the
            Securities and Exchange Commission on January 5, 1999.

    (10)    Incorporated  herein by  reference  and filed as an  Exhibit  to the
            Company's Annual Report on Form 10-K for the year ended December 31,
            1998.

Reports on Form 8-K:
-------------------

         None.


                                       22
<PAGE>
                                   SIGNATURES

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

Date:  March 28, 2003               COMMODORE SEPARATION TECHNOLOGIES, INC.


                                 By: /s/  Paul E. Hannesson
                                    -------------------------------------------
                                    Paul E. Hannesson, Chairman of the Board
                                    and Chief Executive Officer

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.


/s/ Andrew P. Oddi       President, (principal financial and      March 28, 2003
----------------------   accounting officer)
Andrew P. Oddi

/s/  Paul E. Hannesson   Chairman of the Board and Chief          March 28, 2003
----------------------   Executive Officer (principal
Paul E. Hannesson        executive officer)


/s/  Bentley J. Blum     Director                                 March 28, 2003
----------------------
Bentley J. Blum



                                       23
<PAGE>

CERTIFICATION OF CHIEF EXECUTIVE OFFICER


I, Paul Hannesson, certify that:

1. I have  reviewed  this annual  report on Form 10-KSB of Commodore  Separation
Technologies, Inc.;

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

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

4. Commodore Separation Technologies,  Inc.'s other certifying officer and I are
responsible for establishing and maintaining  disclosure controls and procedures
(as defined in Exchange  Act Rules 13a-14 and 15d-14) for  Commodore  Separation
Technologies, Inc. and have:

         a) designed such disclosure controls and procedures to ensure that
material information relating to Commodore Separation Technologies, Inc.,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual report is
being prepared;

         b) evaluated the effectiveness of Commodore Separation Technologies,
Inc.'s disclosure controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the Evaluation Date); and

         c)  presented  in  this  annual  report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

5. Commodore Separation Technologies, Inc.'s other certifying officer and I have
disclosed, based on our most recent evaluation, to Commodore Separation
Technologies, Inc.'s auditors and the audit committee of Commodore Separation
Technologies, Inc.'s board of directors (or persons performing the equivalent
functions):

         a) all significant deficiencies in the design or operation of internal
controls which could adversely affect Commodore Separation Technologies, Inc.'s
ability to record, process, summarize and report financial data and have
identified for Commodore Separation Technologies, Inc.'s auditors any material
weaknesses in internal controls; and

         b) any fraud, whether or not material, that involves management or
other employees who have a significant role in Commodore Separation
Technologies, Inc.'s internal controls; and

6. Commodore Separation Technologies, Inc.'s other certifying officer and I have
indicated in this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.


/s/ Paul Hannesson
-----------------------
Paul Hannesson,
Chief Executive Officer
March 28, 2003


                                       24
<PAGE>

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Andrew P. Oddi, certify that:


1. I have  reviewed  this annual  report on Form 10-KSB of Commodore  Separation
Technologies, Inc.;

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

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

4. Commodore Separation Technologies,  Inc.'s other certifying officer and I are
responsible for establishing and maintaining  disclosure controls and procedures
(as defined in Exchange  Act Rules 13a-14 and 15d-14) for  Commodore  Separation
Technologies, Inc. and have:

         a) designed such disclosure controls and procedures to ensure that
material information relating to Commodore Separation Technologies, Inc.,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual report is
being prepared;

         b) evaluated the effectiveness of Commodore Separation Technologies,
Inc.'s disclosure controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the Evaluation Date); and

         c)  presented  in  this  annual  report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

5. Commodore Separation Technologies, Inc.'s other certifying officer and I have
disclosed, based on our most recent evaluation, to Commodore Separation
Technologies, Inc.'s auditors and the audit committee of Commodore Separation
Technologies, Inc.'s board of directors (or persons performing the equivalent
functions):

         a) all significant deficiencies in the design or operation of internal
controls which could adversely affect Commodore Separation Technologies, Inc.'s
ability to record, process, summarize and report financial data and have
identified for Commodore Separation Technologies, Inc.'s auditors any material
weaknesses in internal controls; and

         b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in Commodore Separation
Technologies, Inc.'s internal controls; and

6. Commodore Separation Technologies, Inc.'s other certifying officer and I have
indicated in this annual report whether there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.


/s/ Andrew P. Oddi
-----------------------
Andrew P. Oddi,
Chief Financial Officer
March 28, 2003


                                       25
<PAGE>