SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            -------------------------
                                    FORM 10-K

                        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, 2000

                         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-K or any
amendment to this Form 10-K. [ ]

         Non-affiliates  of the  registrant  held  shares of Common  Stock as of
March 22, 2001 with an aggregate  market value of  approximately  $96,000 (based
upon the average bid and asked  prices of the Common  Stock on March 22, 2001 as
quoted by the Nasdaq Small Cap Market).

         As of March 22,  2001,  11,596,908  shares of the  registrant's  Common
Stock were outstanding.

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

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None


<PAGE>



                     COMMODORE SEPARATION TECHNOLOGIES, INC.

                           ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

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<S>                                                                                                               <C>

PART I............................................................................................................1


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

                    General.......................................................................................1
                    The SLiM Technology...........................................................................2
                    Contracts.....................................................................................4
                    Markets and Customers.........................................................................5
                    Raw Materials.................................................................................6
                    Backlog.......................................................................................6
                    Research and Development......................................................................6
                    Intellectual Property.........................................................................6
                    Competition...................................................................................7
                    Government Regulation.........................................................................7
                    Environmental Matters.........................................................................8
                    Employees.....................................................................................8

         ITEM 2. PROPERTIES.......................................................................................8


         ITEM 3. LEGAL PROCEEDINGS................................................................................8


         ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............................................8


PART II...........................................................................................................9


         ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............................9

                    Market Information............................................................................9
                    Dividend Information..........................................................................9

         ITEM 6. SELECTED FINANCIAL DATA.........................................................................10


         ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........11

                    General......................................................................................11
                    Results of Operations........................................................................12
                    Liquidity and Capital Resources..............................................................13
                    Net Operating Losses.........................................................................14
                    Forward-Looking Statements...................................................................15

         ITEM  7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................15


         ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................................................15


         ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...........16

</TABLE>

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<TABLE>
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<S>                                                                                                               <C>

PART III.........................................................................................................17


         ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............................................17

                    Executive Officers and Directors.............................................................17
                    Compensation of Directors....................................................................18
                    Compliance with Section 16(a) of the Exchange Act............................................18

         ITEM 11. EXECUTIVE COMPENSATION.........................................................................19

                    Summary Compensation.........................................................................19
                    Stock Options................................................................................19
                    Employment Agreements........................................................................20


         ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................20


         ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................21

                    Organization and Capitalization of the Company...............................................21
                    Offices......................................................................................22
                    Services Agreement...........................................................................22
                    Future Transactions..........................................................................23

PART IV..........................................................................................................24
-------


         ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................................24


SIGNATURES.......................................................................................................27
----------
</TABLE>

                                       ii

<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.  Under a license  agreement  with
Lockheed Martin Energy Research  Corporation,  the Company also has received the
exclusive  worldwide  license  (subject to a government  use license) to use and
develop its SLiM  technology for separating  the  radionuclides,  technetium and
rhenium,  from mixed wastes  containing  radioactive  materials.  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.

         To finance the  significant  growth  experienced  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 March 22, 2001  approximately  86% 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


                                       1
<PAGE>

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  and a write off of  leasehold  improvements  of $85,000 in the year
ended   December  31,  2000.  The  Company  plans  to  continue  to  search  for
applications  for its  technology.  The Company has no ongoing  operations as of
December 31, 2000.

         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:

o        requires lower initial capital costs and lower operating costs;


                                       2
<PAGE>

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.

CONTRACTS

         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"), provides that the Company will lease a SLiM unit
to MES for a one-time,  lump-sum lease payment of $250,000, and will license its

                                       3
<PAGE>

proprietary  SLiM  technology to MES in exchange for a royalty equal to one-half
of any savings  which MES  realizes 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 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"),  provides that the Company will lease a SLiM unit
to MES for a one-time,  lump-sum lease payment of $350,000, and will license its
proprietary  SLiM  technology to MES in exchange for a royalty equal to one-half
of any savings  which MES  realizes 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 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 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,  which may be terminated at any time
solely by the  Company,  has a term which will last until the end of the life of
all patents or patentable  claims described in or ultimately  arising out of the
patent application filed jointly by the Company and three colleagues of Srinivas
Kilambi,  Ph.D.,  the Company's  former Senior Vice  President--Technology,  who
worked  with  him  at  Oak  Ridge,   covering   their   inventions   related  to
radionuclides. Based on tests conducted at Oak Ridge since May 1994, the Company
believes  that  this  technology  is  capable  of  selectively   extracting  and
recovering technetium,  rhenium and other radioactive isotopes as a concentrated
aqueous   solution  that  can  be  reused  in  various   scientific  or  medical
applications  or  disposed  of  by   government-approved   techniques  including
long-term  storage.  The Company  believes  that this  technology  may remediate
nuclear  wastewater  stored at the  Department  of Energy's  (the " DOE") atomic
energy plants in Rocky Flats, Colorado;  Idaho Falls, Idaho; Paducah,  Kentucky;
Weldon Springs, Missouri; Frenchman Flat, Nevada; Los Alamos, New Mexico; Aiken,
South Carolina; Oak Ridge,  Tennessee;  Pantex, Texas; and Hanford,  Washington,
and intends to pursue such  opportunities.  According to DOE sources,  there are
approximately  100 million gallons of mixed  radioactive and hazardous  chemical
waste stored at these plants.

MARKETS AND CUSTOMERS

         Overview

                                       4
<PAGE>

         Based on market data  compiled by the  Company,  the Company  estimates
that,  as of  December  31,  2000,  there  were  approximately  7,000  companies
operating metal plating and metal finishing facilities in the United 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.

         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
will supply  these  modules at a  reasonable  mark-up  over their  cost.  As new
patents  are filed and  issued,  the  Company  may,  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 may
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 present 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 energy.  SLiM may have  capabilities
in the separation of  radionuclides  such as strontium,  cesium,  technetium and
rhenium.  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  anticipates  pursuing this market
area in collaboration  with established  engineering and  environmental  service
organizations,  which can provide technical and professional  expertise,  market
presence and credibility.  The Company has successfully  demonstrated  selective
radionuclide capabilities on a limited basis.


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.
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.


                                       5
<PAGE>


BACKLOG

         At December 31, 2000, 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 and
its  subsidiaries.  All such  activities  are  company-sponsored.  Research  and
development expenditures for the Company were $114,000,  $338,000 and $1,299,000
for the years ended December 31, 2000, 1999 and 1998, respectively.

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. In January 1999, the Company filed a U.S. patent application for
chromium  removal and recovery  covering the sole invention of Dr. W.S.  Winston
Ho, former Senior Vice  President - Technology.  In February  2000,  the Company
filed three U.S. Patent  Application for using a strip dispersion  technique and
interfacial  polymerization  with SLiM 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,  diluents,
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,  diluents,
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
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.

                                       6
<PAGE>

         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 and in
only rare circumstances, 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  will  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 is 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.  Applied
maintains,  on behalf of itself and its  subsidiaries  (including  the Company),
contractor's  pollution  liability  insurance  with  limits of $5.0  million per
occurrence  and $5.0 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 March 22, 2001, the Company had no full-time employees.

                                       7
<PAGE>

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

         The Company also 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, Applied and certain of their affiliates.


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

         During the year ended  December 31, 2000, and as of March 22, 2001, the
Company was not involved in any litigation.


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, 2000.


                                       8
<PAGE>


                                     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  maintain  standards  for  continued  listing on the Nasdaq
Market System.  The Company is currently  listed on the OTC Bulletin  Board.  On
March 22, 2001, there were 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.
<TABLE>
<CAPTION>


                                                                                 Convertible
                                                 Common Stock                  Preferred Stock                      Warrants
                                           ---------- ---- ----------    ---------- --- -------------    ----------- --- -----------
                                             High             Low          High             Low             High            Low
                                           ----------      ----------    ----------     -------------    -----------     -----------
<S>                                            <C>             <C>           <C>               <C>            <C>             <C>
FISCAL YEAR 2000
   January 1 to March 31, 2000.......          $0.75           $0.04         $0.88             $0.38          $0.00           $0.00
   April 1 to June 30, 2000..........           0.37            0.06          0.38              0.25           0.00            0.00
   July 1 to September 30, 2000......           0.24            0.06          0.25              0.25           0.00            0.00
   October 1 to December 31, 2000....           0.08            0.04          0.19              0.06           0.00            0.00

FISCAL YEAR 1999
   January 1 to March 31, 1999.......          $0.63           $0.05         $0.25             $0.13          $0.01           $0.01
   April 1 to June 30, 1999..........           0.13            0.06          0.25              0.13           0.01            0.01
   July 1 to September 30, 1999......           0.13            0.06          0.13              0.06           0.01            0.01
   October 1 to December 31, 1999....           0.08            0.01          0.13              0.06           0.01            0.01
</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.

                                       9

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA.
-------  ------------------------

         The selected  financial data included in the following table as of June
30, 1997,  December 31, 1997,  1998,  1999 and 2000, for the year ended June 30,
1997,  for the six-month  period ended December 31, 1997 and for the years ended
December  31,  1998,  1999 and  2000 are  derived  from  the  audited  Financial
Statements of the Company appearing elsewhere herein. The financial data for the
six-month  period ended  December  31, 1996 is unaudited  and, in the opinion of
management,  includes all adjustments  (consisting of normal recurring accruals)
considered necessary for a fair presentation. The selected financial data should
be read in conjunction with  "Management's  Discussion and Analysis of Financial
Condition  and Results of  Operations"  and the Financial  Statements  and Notes
thereto appearing elsewhere herein.

<TABLE>
<CAPTION>



                                                         Six Months Ended
                                    Year Ended              December 31,            Year Ended       Year Ended       Year Ended
Statement of Operations Data         June 30,        ---------------------------   December 31,      December 31,     December 31,
(1):                                  1997              1996            1997           1998              1999             2000
                                    ----------       -----------     -----------   ------------      ------------     ------------
                                                     (unaudited)

<S>                                 <C>             <C>               <C>            <C>              <C>              <C>
Costs and expenses............      $(3,265,000)    $   (857,000)     $(2,961,000)   $ (3,749,000)    $ (2,141,000)    $ (1,994,000)

Revenue.......................               --               --               --          19,000          337,000           66,000

Other income
   And (expense)...............          94,000            3,000          195,000         120,000           18,000           13,000


Net loss......................       (3,171,000)        (854,000)      (2,766,000)     (3,629,000)      (1,786,000)      (1,915,000)

Net loss per share--basic
   And diluted (2)............             (.32)            (.09)            (.27)           (.37)            (.21)            (.22)

Weighted Average Number of
   Shares.....................       10,375,000       10,000,000       11,502,000      11,514,000       11,516,000       11,575,000
</TABLE>


<TABLE>
<CAPTION>

Balance Sheet Data:                                           December 31,          December 31,      December 31,    December 31,
                                        June 30, 1997             1997                   1998            1999            2000
                                        -------------         ------------          ------------      ------------    ------------

<S>                                      <C>                <C>                      <C>            <C>              <C>
Working capital (deficit)..........      $ 7,817,000        $ 4,462,000              $   549,000    $ (1,740,000)    $ (3,111,000)
Total assets.......................        9,850,000          6,660,000                2,665,000       1,908,000          234,000
Long-term liabilities..............           18,000             13,000                    4,000               0                0
Deficit accumulated during
development stage..................       (3,232,000)        (5,998,000)              (9,627,000)    (11,413,000)     (13,328,000)
Stockholders' equity (deficit).....        8,708,000          5,652,000                1,805,000        (597,000)      (3,111,000)

-----------------------------------
</TABLE>

(1)      The  Company  is a  development  stage  company  and  has  had  limited
         commercial  operations  to  date.  See  Note 1 of  Notes  to  Financial
         Statements.


                                       10
<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS
------   OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
         ------------------------------------------------

GENERAL

         The  Company was  organized  in November  1995,  and has not  generated
material revenues or any profits through December 31, 2000. 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, 2000,  the Company
incurred a net loss of  $13,328,000.  For the year ended  December 31, 2000, the
Company  incurred a loss of $1,915,000 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.

         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.

         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  and a write off of  leasehold  improvements  of $85,000 in the year
ended   December  31,  2000.  The  Company  plans  to  continue  to  search  for
applications for its technology.

         RESULTS OF OPERATIONS

Year ended December 31, 2000  compared      to year ended December 31, 1999

         The  Company  obtained  a  contract  from a  customer  in March 2000 ad
recorded  revenues of $66,000 for the year ended  December 31, 2000. The Company
commenced  its  contracts  with  the  Port of  Baltimore  in  February  1999 and
generated  revenues of $337,000 for the year ended  December  31, 1999.  Cost of
sales  amounted to $107,000 and  $541,000 for the years ended  December 31, 2000
and 1999.  Cost of sales primarily  include the cost of equipment,  shipping and
set up costs.


         Research  and  development  costs  were  $114,000  for the  year  ended
December 31, 2000 as compared to $338,000 for the year ended  December 31, 1999.
Since  1998,  the  Company  began to shift  its  focus  to  commercializing  the
technology,  thereby  reducing its efforts in the research and development  area

                                       11
<PAGE>

and focusing on getting the technology out to potential customers.  Research and
development costs include  salaries,  wages and other related costs of personnel
engaged in research and development activities, as well as contract services and
equipment used in research and development activities.  Research and development
costs are expensed when incurred.

         General and  administrative  expenses  were $313,000 for the year ended
December 31, 2000 as compared to $743,000 for the year ended  December 31, 1999.
In 1998, the Company began an effort to reduce its overhead  expenses and placed
more of a focus on developing its technology and getting it out to customers. In
October 1998, the Company reduced the number of employees from twenty-three down
to eight and has reduced its reliance on corporate infrastructure.  In 2000, the
company closed its Kennesaw facility.

         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.

         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  and a write off of  leasehold  improvements  of $85,000 in the year
ended  December 31, 2000.  The Company also recorded an impairment of intangible
assets 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 no
ongoing operations as of December 31, 2000.

         Depreciation  and  amortization  decreased  to  $235,000  in 2000  from
$507,000 in 1999 as a result of the write down of fixed  assets in June of 2000.
These  fixed  assets  include  SLiM  units  and  modules  used in the  Company's
technology process.

         Sales and marketing  expense  increased to $18,000 in 2000 from $12,000
in 1999 as a result of the Company  focusing  on trying to identify  new markets
for applications of its technology.

         Interest  income was  $13,000 in 2000 as  compared  to $18,000 in 1999.
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.


RESULTS OF OPERATIONS

Year ended December 31, 1999 compared       to year ended December 31, 1998

         The Company  commenced  its  contracts  with the Port of  Baltimore  in
February  1999 and  generated  revenues of  $337,000  for the year then ended as
compared  to $0 for the year  ended  December  31,  1998.  These  revenues  were
generated  primarily from the contract with Maryland  Environmental  Services at
the Port of  Baltimore.  Cost of sales  amounted to $541,000  for the year ended
December  31,  1999.  Cost of sales  primarily  include  the cost of  equipment,
shipping and set up costs.

         Research  and  development  costs  were  $338,000  for the  year  ended
December  31, 1999 as compared to  $1,299,000  for the year ended  December  31,
1998.  Since 1998, the Company began to shift its focus to  commercializing  the
technology,  thereby  reducing its efforts in the research and development  area
and focusing on getting the technology out to potential customers.  Research and
development costs include  salaries,  wages and other related costs of personnel
engaged in research and development activities, as well as contract services and
equipment used in research and development activities.  Research and development
costs are expensed when incurred.

         General and  administrative  expenses  were $743,000 for the year ended
December  31, 1999 as compared to  $1,096,000  for the year ended  December  31,
1998. In 1998,  the Company began an effort to reduce its overhead  expenses and
placed  more of a focus on  developing  its  technology  and  getting  it out to
customers.  In October 1998,  the Company  reduced the number of employees  from
twenty-three   down  to  eight  and  has  reduced  its   reliance  on  corporate
infrastructure.

                                       12
<PAGE>

         Depreciation  and  amortization  increased  to  $507,000  in 1999  from
$408,000 in 1998 as a result of the purchase and related  depreciation  of fixed
assets.  These fixed assets include SLiM units and modules used in the Company's
technology process.

         Corporate  overhead  expenses  decreased to $0 in 1999 from $529,000 in
1998 as a result of reduced  reliance on corporate  personnel and elimination of
administrative expenses charged by its parent.

         Sales and marketing  expense decreased to $12,000 in 1999 from $417,000
in 1998 as a result of the Company's focus on the commencing of operations.  The
Company is trying to identify new markets for  applications  of its  technology,
however its main focus is on commencing its operations.

         Interest  income was  $18,000 in 1999 as  compared to $101,000 in 1998.
The Company successfully  completed an initial public offering in April 1997 and
through 1998 had generated interest income from the proceeds of the offering.

Year ended December 31, 1998 compared to year ended December 31, 1997

         Research  and  development  costs  were  $1,299,000  for the year ended
December  31, 1998 as compared to  $1,390,000  for the year ended  December  31,
1997. During 1998, the Company began to shift its focus to  commercializing  the
technology,  thereby  reducing its efforts in the research and development  area
and focusing on getting the technology out to potential customers.  Research and
development costs are expensed when incurred.

         General and administrative  expenses were $1,096,000 for the year ended
December  31, 1998 as compared to  $1,800,000  for the year ended  December  31,
1997. In 1998,  the Company began an effort to reduce its overhead  expenses and
placed  more of a focus on  developing  its  technology  and  getting  it out to
customers.  In October 1998,  the Company  reduced the number of employees  from
twenty-three   down  to  eight  and  has  reduced  its   reliance  on  corporate
infrastructure.

         Depreciation  and  amortization  increased  from  $234,000  in  1997 to
$408,000 in 1998 as a result of the purchase and related  depreciation  of fixed
assets.  These fixed assets include SLiM units and modules used in the Company's
technology process.

         Corporate  overhead  expenses  decreased  from  $1,616,000  in  1997 to
$529,000 in 1998 as a result of reduced  reliance on corporate  personnel  and a
decrease in other administrative expenses charged by its parent.

         Sales and marketing expense increased from $281,000 in 1997 to $417,000
in 1998 as a result of the  Company's  focus on getting  the  technology  out to
potential customers.  In addition, the Company is trying to identify new markets
for applications of its technology.

         Interest  income was  $101,000 in 1998 as compared to $294,000 in 1997.
The Company successfully  completed an initial public offering in April 1997 and
through 1998 has  generated  interest  income from the proceeds of the Company's
IPO.

LIQUIDITY AND CAPITAL RESOURCES

         Through  April  1997,  the Company  financed  its  development  efforts
through  direct  equity  investments  and  loans  from  Commodore  Environmental
Services,  Inc.  ("Environmental")  and Applied. From November 15, 1995 (date of
inception) to December 31, 2000, the Company purchased or constructed  equipment
totaling  $1,894,000  and has incurred  patent filing and  maintenance  costs of
$213,000. In December 1996, as part of a corporate  restructuring to consolidate
all  of  its  current   environmental   technology  businesses  within  Applied,
Environmental  transferred  to  Applied  all of the then  outstanding  shares of
capital stock of the Company and another Environmental  subsidiary. 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 to purchase  7,500,000  shares of Applied's  common stock.  See "Certain
Relationships and Related  Transactions--Organization  and Capitalization of the
Company."


         Effective as of September  28, 1998  Commodore  Environmental  Services
LLC, a Delaware limited liability company wholly owned by Environmental acquired

                                       13
<PAGE>

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
which converts into 2,380,000  shares of the Company's  common stock in exchange
for indebtedness to the Company of $357,000.  The transaction was consummated on
December 25, 1998.  Environmental,  as of March 15, 2001, owns approximately 30%
of the outstanding  shares of Applied common stock.  Bentley J. Blum, a director
of  Environmental   and  the  beneficial  owner  of  approximately  52%  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  has become the
direct,  86%-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,  will  maintain  their  current
management  positions  in  the  Company.  The  acquisition  of  the  Company  by
Environmental will be accounted for under the purchase method of accounting.

         The  Company  has  sustained  losses  of  $1,915,000,   $1,786,000  and
$3,629,000 for the years ended December 31, 2000,  1999 and 1998,  respectively.
The Company had no significant revenues during the period from November 15, 1995
(date of  inception)  to December 31, 2000.  Substantially  all of the Company's
losses are attributable to the expenses detailed above. At December 31, 2000 the
Company had a working capital deficit of $3,111,000 and a stockholders'  deficit
of $3,111,000.  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 86% 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 is continuing to
pursue external financing.

NET OPERATING LOSSES

         At  December  31,  2000,  the  Company  had tax loss  carryforwards  of
approximately  $13,300,000.  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.

YEAR 2000 CONSIDERATIONS

         Prior to January 1, 2000,  there was a great deal of concern  regarding
the ability of computers to  adequately  recognize  21st century dates from 20th
century  dates due to the  two-digit  date  fields  used by many  systems.  Most
reports to date, however, are that computer systems are functioning normally and
the compliance and remediation work accomplished  during the years leading up to
2000 was effective to prevent any problems.  As of the date of this  prospectus,
the Company has not experienced any such computer difficulty;  however, computer
experts have warned that there may still be residual  consequences of the change
in centuries and any such difficulties may,  depending upon their  pervasiveness
and  severity,  have  a  material  adverse  effect  on the  Company's  business,
financial condition and results of operations. Any of the following could have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations:

         o   a  failure  to fully  identify  all year 2000  dependencies  in the
             Company's systems;

         o   a  failure  to fully  identify  all year 2000  dependencies  in the
             systems of third parties with whom the Company does business;

         o   a failure of any third party with whom the Company does business to
             adequately address their year 2000 issues;

         o   the  failure  of any  contingency  plans  develop  to  protect  the
             Company's   business   and   operations   from  year   2000-related
             interruptions; and

                                       14
<PAGE>


         o   delays in the  implementation  of new systems  resulting  from year
             2000 problems.

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
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 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
--------   -----------------------------------------------------------

         Not applicable.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------   --------------------------------------------

         The  financial  statements  of the  Company  are  included on pages F-1
through F-24 of this Annual Report and are incorporated herein by reference.



ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
------   ON ACCOUNTING AND FINANCIAL DISCLOSURE.
         ---------------------------------------------

         On  August  17,  1999,  the  Company  dismissed  its  former  auditors,
PricewaterhouseCoopers  LLP ("PwC").  Additionally  as of August 17,  1999,  the
Company retained Tanner + Co. ("Tanner") to serve as their independent auditors.
The decision to terminate its relationship with PwC was approved by the Board of
Directors of the Company.

         For the year ended  December 31, 1998,  for the six-month  period ended
December  31,  1997 and for the year ended  June 30,  1997,  PwC  reports on the
Company's  financial  statements (a development stage company) neither contained
any adverse  opinions or  disclaimers of opinions nor were qualified or modified
as to  uncertainty,  audit  scope or  accounting  principle,  except  that PwC's
auditors report on the Company's  consolidated financial statements for the year
ended  December  31, 1998  contained  an  additional  paragraph  relating to the
Registrant  continuing as a going concern due to the Company's  recurring losses
from operations and net cash outflows from operations.

                                       15
<PAGE>

         In connection with the audits for the year ended December 31, 1998, for
the six month  period  ended  December  31, 1997 and for the year ended June 30,
1997 and through August 17, 1999,  there were no  disagreements  with PwC on any
matter of accounting principles or practices,  financial statement disclosure or
auditing  scope  or  procedure,  which  disagreements,  if not  resolved  to the
satisfaction  of PwC,  would have  caused it to make  reference  to the  subject
matter of the disagreements in connection with its report.

         No  "reportable   events"  as  described  under  Item  304(a)(1)(v)  of
Regulation  S-K occurred  during the year ended  December  31, 1998,  during the
six-month  period  ended  December  31,  1997 and during the year ended June 30,
1997.

         Prior to engaging Tanner,  the Company did not consult Tanner regarding
any of the  matters  or  events  set  forth  in Item  304(a)(2)(i)  and  (ii) of
Regulation S-K.


                                       16
<PAGE>



                                    PART III
                                    --------

ITEM 10.      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 March 28,  2001,  are as
follows:

<TABLE>
<CAPTION>

Name                                        Age    Position
----                                        ---    --------
<S>                                          <C>   <C>

Paul E. Hannesson.....................       60    Chairman of the Board and Chief Executive Officer
Carl  O. Magnell......................       58    President and Chief Operating Officer
James M. DeAngelis....................       40    Senior Vice President - Sales & Marketing
Bentley J. Blum.......................       59    Director
-----------------------
</TABLE>

         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 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.

         Carl O. Magnell,  P.E. has served as President of the Company since May
1998, succeeding Kenneth J. Houle, former President and Chief Operating Officer,
upon Mr. Houle's death in May 1998. Mr. Magnell also served as Vice President of
Applied from June 1996,  was  appointed  Vice  President - Technology & Business
Development  of Applied  in June 1997 and from  February  1998 until  April 1998
served as Vice President - Technology and Sales & Sales of Applied.  Mr. Magnell
also served as Vice President of Environmental from September 1995 to June 1996.
From  1992 to 1995,  Mr.  Magnell  served  as  Director  of  Research  for Civil
Engineering  Research  Foundation (an  industry-sponsored  engineering  research
group),  and  from  1964 to 1992  Mr.  Magnell  served  in  various  engineering
capacities  with the U.S.  Army Corps of  Engineers.  Mr.  Magnell  holds a B.S.
degree from the United States Military Academy, and an M.S. in civil engineering
and political science from the Massachusetts Institute of Technology.

         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 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

                                       17
<PAGE>

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.

         On March 28,  2000,  Herbert A. Cohen,  David L.  Mitchell,  William R.
Toller and  Kenneth  L.  Adelman  resigned  from the Board of  Directors  of the
Company.

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, 2000,  and upon a
review of Forms 5 and amendments  thereto  furnished to the Company with respect
to the year ended December 31, 2000, 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, 2000.


                                       18
<PAGE>



ITEM 11.   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, 2000,  1999 and
1998, 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             2000            -0-          -0-          -0-            -0-            -0-        -0-          -0-
Chief Executive Officer       1999            -0-          -0-          -0-            -0-            -0-        -0-          -0-
                              1998         94,504(1)       -0-        2,610(2)         -0-        280,000        -0-          -0-


James M. DeAngelis            2000            -0-          -0-          -0-            -0-            -0-        -0-          -0-
Senior Vice President         1999            -0-          -0-          -0-            -0-            -0-        -0-          -0-
                              1998        107,005          -0-          -0-            -0-        187,500        -0-          -0-


Kenneth J. Houle(3)           2000            -0-          -0-          -0-            -0-            -0-         -0-         -0-
Former President & Chief      1999            -0-          -0-          -0-            -0-            -0-         -0-         -0-
Operating Officer             1998        100,243          -0-          -0-            -0-            -0-         -0-         -0-

</TABLE>

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

         (1) Represents the amount of Mr.  Hannesson's  base salary allocated to
             the Company for such period.  Mr. Hannesson's total base salary for
             calendar  year 1998 was  $434,500.  Certain  portions  of such base
             salary  were also  allocated  to  Applied  and  Environmental.  See
             "Certain    Relationships   and   Related    Transactions--Services
             Agreement."

         (2) Represents  the  amount  of Mr.  Hannesson's  automobile  allowance
             allocated to the Company for such  period.  Mr.  Hannesson's  total
             automobile allowance for 1998 was $12,000. Certain portions of such
             automobile   allowance   were  also   allocated   to  Applied   and
             Environmental.

         (3) Mr. Houle passed away in May 1998.


STOCK OPTIONS

         No stock  options  were  granted in 2000 or 1999.  The  Company  has no
outstanding stock appreciation  rights and granted no stock appreciation  rights
during the year ended December 31, 2000.


                                       19
<PAGE>



EMPLOYMENT AGREEMENTS

         Paul E.  Hannesson,  the  Company's  Chairman  of the  Board  and Chief
Executive Officer, entered into an employment agreement with Environmental as of
November 18, 1996 for a term  expiring on December  31,  1999.  Pursuant to such
employment   agreement,   Mr.  Hannesson  agreed  to  devote  his  business  and
professional  time and  efforts to the  business  of  Environmental  as a senior
executive officer,  and to serve in senior executive  positions with one or more
of Environmental's  affiliates,  including the Company. The employment agreement
provides that Mr. Hannesson shall receive,  among other things, a base salary at
an annual rate of $395,000  through December 31, 1997, and will receive not less
than  $434,500  through  December  31, 1998 and not less than  $477,950  through
December 31, 1999, for services  rendered to  Environmental  and its affiliates,
including  the Company.  Pursuant to the  employment  agreement,  Mr.  Hannesson
received,  among other things:  (i) a signing bonus of (a) $150,000 cash and (b)
stock options to purchase 950,000 shares of common stock of Environmental, which
options  vested on the date of his  employment  agreement;  and (ii)  options to
purchase  an  aggregate  of  2,500,000  shares of  Environmental  common  stock,
exercisable in installments  over a period of five years  commencing on the date
of his employment  agreement.  Mr.  Hannesson also received  options to purchase
common stock of the Company and Applied in the amount of 1.0% of each  company's
total  outstanding  shares of common stock on the date of grant, and is eligible
to receive  incentive  compensation  of up to  $225,000  per year for  achieving
certain goals.

         Mr.  Hannesson's  base salary increased from $395,000 for calendar year
1997  to  $434,500  for  calendar  year  1998,   representing   an  increase  of
approximately 10%. Such base salary was allocated among the Company, Applied and
Environmental  based upon the amount of time and effort devoted by Mr. Hannesson
to the  respective  businesses  of such  companies.  Consequently,  the Company,
Applied and Environmental paid $94,504, $250,526 and $58,658,  respectively,  of
such salary. Mr. Hannesson also received an automobile  allowance of $12,000 for
the 1998 calendar year, and the Company,  Applied and Environmental paid $2,610,
$7,770 and $1,620, respectively,  of such allowance. For the 1997 calendar year,
Mr.  Hannesson  was  awarded  an  incentive  bonus of  $100,000.  Such bonus was
allocated among the Company,  Applied and Environmental based upon the amount of
time and effort devoted by Mr.  Hannesson to the  respective  businesses of such
companies.  Consequently,  the Company,  Applied and Environmental paid $32,770,
$63,356 and $3,874, respectively, of such bonus.

         In June 1998, Mr.  Hannesson's  Employment  Agreement was assigned from
Environmental to Applied. On September 28, 1998, the Company was sold by Applied
to  Environmental  and effective as of that date the costs  associated  with Mr.
Hannesson's employment agreement ceased being allocated to the Company.

         The employment  agreements  also provide for termination by the Company
upon death or disability (defined as three aggregate months of incapacity during
any  365-consecutive  day period) or upon  conviction of a felony crime of moral
turpitude or a material breach of their obligations to the Company. In the event
any of the employment  agreements  are terminated by the Company  without cause,
such executive will be entitled to compensation for the balance of the term.

         The employment  agreements  also contain  covenants (a) restricting the
executive from engaging in any activities  competitive  with the business of the
Company during the terms of such employment  agreements and one year thereafter,
(b)  prohibiting  the  executive  from  disclosure of  confidential  information
regarding  the Company at any time,  and (c)  confirming  that all  intellectual
property  developed by the executive and relating to the business of the Company
constitutes  the  sole and  exclusive  property  of the  Company.  See  "Certain
Relationships and Related Transactions--Services Agreement."

<PAGE>


ITEM 12.  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 March 22, 2001 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)                      89.1%

Bentley J. Blum.............................              5,126,987(4)                      36.8%
</TABLE>


                                       20
<PAGE>
<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)                      89.1%

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

James M. DeAngelis..........................                278,370(6)                       2.4%

All executive officers and directors
as a group (3 persons)......................              6,368,344                         48.0%

</TABLE>

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

* Percentage ownership is less than 1%.

(1)      The address of each of Commodore Environmental Services,  Inc., Bentley
         J. Blum,  Paul E.  Hannesson  and James M.  Deangelis  is 150 East 58th
         Street,  Suite 3400, 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.

<PAGE>

(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.


ITEM 13.   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

                                       21
<PAGE>

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,  87%-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.

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.

                                       22
<PAGE>

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.



                                       23
<PAGE>



                                     PART IV
                                     -------

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT
-------   SCHEDULES AND REPORTS ON FORM 8-K.
          ----------------------------------

The following documents are filed as part of this Annual Report:
<TABLE>
<CAPTION>

Financial Statements.                                                                                   Page No.
--------------------                                                                                    --------
         <S>                                                                                              <C>

         Report of Tanner + Co.......................................................................     F-1

         Report of PricewaterhouseCoopers LLP........................................................     F-2

         Balance Sheets as of December 31, 2000 and 1999.............................................     F-3

         Statements of Operations for the year ended December 31, 2000, 1999 and 1998,
              and cumulative amounts since inception.................................................     F-4

         Statements of Stockholders' (Deficit) Equity
              for the period from November 15, 1995 (date of inception) to December 31, 2000.........     F-5

         Statements of Cash Flows for the year ended December 31, 2000, 1999 and 1998
              and cumulative amounts since inception.................................................     F-8

         Notes to Financial Statements...............................................................     F-10

</TABLE>

         All financial  statement  schedules for which  provision is made in the
applicable  accounting  regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and, therefore,
have been omitted.

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)

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

                                       24
<PAGE>

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)

                                       25
<PAGE>

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

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

22.1         Subsidiaries of the Company.(1)


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

* 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.

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

         None.



                                       26
<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:  April  11, 2001                  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/ James M. DeAngelis      Senior Vice President, Sales and      April 11, 2001
----------------------      Marketing (principal financial and
James M. DeAngelis          accounting officer)


/s/  Paul E. Hannesson      Chairman of the Board and Chief       April 11, 2001
----------------------      Executive Officer (principal
Paul E. Hannesson           executive officer)


/s/  Bentley J. Blum        Director                              April 11, 2001
----------------------
Bentley J. Blum




                                       27
<PAGE>


COMMODORE SEPARATION TECHNOLOGIES, INC.
Financial Statements
December 31, 2000 and 1999



<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.

                                                                           Index

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







                                                                          Page
                                                                          ----

Independent Auditors' Reports
      Tanner + Co.                                                         F-1
      PricewaterhouseCoopers, LLP                                          F-2

Balance Sheet as of December 31, 2000 and 1999                             F-3

Statement of Operations for the years ended
  December 31, 2000, 1999 and 1998,
  and cumulative amounts since inception                                   F-4

Statement of Stockholders' Deficit
  Period November 15, 1995 (date of inception)
  through December 31, 2000                                                F-5

Statement of Cash Flows for the years ended
  December 31, 2000, 1999 and 1998,
  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, 2000 and 1999 and the related
statements  of  operations,  stockholders'  deficit and cash flows for the years
then ended and the period from November 15, 1995 (date of inception) to December
31, 2000.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the 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, 2000 and
1999,  and the results of its  operations  and its cash flows for the years then
ended, and the period from November 15, 1995 (date of inception) to December 31,
2000 in conformity with generally accepted accounting principles.

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 stockholder's
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.




Salt Lake City, Utah
January 19, 2001

                                                                             F-1

<PAGE>


                        Report of Independent Accountants


To the Board of Directors and Stockholders
    of Commodore Separation Technologies, Inc. (a development stage company):

In our opinion,  the  accompanying  statements of operations,  of  stockholders'
deficit and of cash flows for the year ended  December 31, 1998 present  fairly,
in all material respects,  the results of operations and cash flows of Commodore
Separation  Technologies,  Inc. (a development stage company) for the year ended
December 31, 1998, in conformity with accounting  principles  generally accepted
in  the  United  States  of  America.   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 audit. We conducted our audit
of these statements in accordance with auditing standards  generally accepted in
the United States of America which 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,  assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall  financial  statement  presentation.  We believe that our
audit  provides a  reasonable  basis for our  opinion.  We have not  audited the
financial statements of Commodore Separation  Technologies,  Inc. for any period
subsequent to December 31, 1998.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements,  the Company has suffered recurring losses from operations
and net cash outflows from operations. These facts raise substantial doubt about
the  Company's  ability to continue as a going  concern.  Management's  plans in
regard to these matters are also  described in Note 2. The financial  statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.


PricewaterhouseCoopers LLP


Philadelphia, Pennsylvania
April 13, 1999



                                                                             F-2
<PAGE>
<TABLE>
<CAPTION>


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



                                                                                    December 31,
                                                                       -----------------------------------
                                                                             2000              1999
                                                                       -----------------------------------
              Assets
              ------
<S>                                                                    <C>                <C>

Current assets:
     Cash and cash equivalents                                         $               1  $             16
     Restricted cash                                                                 233               220
     Accounts receivable                                                               -                10
     Inventory                                                                         -               519
                                                                       -----------------------------------

                  Total current assets                                               234               765

Property and equipment:
     Technical equipment                                                               -             1,491
     Office equipment                                                                  -               403
     Leasehold improvements                                                            -               210
                                                                       -----------------------------------

                                                                                       -             2,104

     Less accumulated depreciation                                                     -            (1,141)
                                                                       -----------------------------------

Net property and equipment                                                             -               963

Intangible assets, net of accumulated
  amortization of $206 and $26                                                         -               180
                                                                       -----------------------------------




                  Total assets                                         $             234  $          1,908
                                                                       -----------------------------------


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

</TABLE>

See accompanying notes to financial statements.


<PAGE>
<TABLE>
<CAPTION>


                                                                   COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                                             Balance Sheet

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

                                                                               2000            1999
                                                                       -----------------------------------
         Liabilities and Stockholders' Deficit
         -------------------------------------
<S>                                                                      <C>                <C>

Current liabilities:
Accounts payable                                                         $            269   $          352
Accrued expenses                                                                      134               78
Advance deposits                                                                      263              263
Due to related parties                                                              1,164              896
Accrued dividends                                                                   1,515              916
                                                                         ---------------------------------

                  Total current liabilities                                         3,345            2,505

Commitments and contingencies                                                           -                -

Stockholders' deficit:
     Preferred stock, Series A, $.001 par value, 10% cumulative,
       5,000,000 shares authorized, 569,500 and 600,000 shares
       issued and outstanding at December 31, 2000 and 1999,
       respectively                                                                     1                1
     Preferred stock, Series B, $.001 par value, 6%
       cumulative, 4,000 shares authorized, 3,570 shares
       issued and outstanding at December 31, 2000 and
       1999                                                                             -                -
     Common stock, $.001 par value, 50,000,000 shares
       authorized, 11,596,908 and 11,515,575 shares issued
       and outstanding at December 31, 2000 and 1999,
       respectively                                                                    11               11
     Additional paid-in capital                                                    10,205           10,804
     Deficit accumulated during development stage                                 (13,328)         (11,413)
                                                                         ---------------------------------

                  Total stockholders' deficit                                      (3,111)            (597)
                                                                         ---------------------------------

                  Total liabilities and stockholders' deficit            $            234   $        1,908
                                                                         ---------------------------------


----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
                                                                                                       F-3

</TABLE>

<PAGE>

<TABLE>
<CAPTION>



                                                                   COMMODORE SEPARATION TECHNOLOGIES, INC.

                                                                                   Statement of Operations

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



                                                                                             Cumulative
                                                                                            Amounts From
                                                                                            November 15,
                                                                                           1995 (Date of
                                                       Year Ended December 31,              Inception) to
                                            ----------------------------------------------  December 31,
                                                  2000           1999           1998            2000
                                            --------------------------------------------------------------

<S>                                         <C>                <C>            <C>            <C>
Contract revenues                           $             66   $        337   $          -   $         403

Costs and expenses:
   Cost of sales                                         107            541              -             648
   Research and development                              114            338          1,299           3,603
   General and administrative                            313            743          1,096           4,387
   Impairment of inventory                               519              -              -             519
   Impairment of property and equipment                  513              -              -             513
   Impairment of intangible assets                       175              -              -             175
   Depreciation and amortization                         235            507            408           1,402
   Corporate overhead expenses                             -              -            529           2,145
   Sales and marketing                                    18             12            417             728
   Licensing fee                                           -              -              -              50
                                            --------------------------------------------------------------

     Total costs and expenses                          1,994          2,141          3,749          14,170
                                            --------------------------------------------------------------

     Loss from operations                             (1,928)        (1,804)        (3,749)        (13,767)

Other income                                               -              -             19              27
Interest income                                           13             18            101             426
Interest expense                                           -              -              -             (14)
                                            --------------------------------------------------------------

     Net loss before  income taxes                    (1,915)        (1,786)        (3,629)        (13,328)

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

Net loss                                    $         (1,915)  $     (1,786)  $     (3,629)  $     (13,328)
                                            --------------------------------------------------------------

Net loss per share -
  basic and diluted                         $           (.22)  $       (.21)  $       (.37)  $       (1.40)
                                            --------------------------------------------------------------

Weighted average number of
  shares outstanding ( in
  thousands)                                          11,575         11,516         11,514          11,103
                                            --------------------------------------------------------------

----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
                                                                                                       F-4

</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                                                                             COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                                                  Statement of Stockholders' Deficit

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





                                 Preferred Stock    Preferred Stock                                                          Total
                                     Series A         Series B       Common Stock                  Additional                Stock-
                                ----------------------------------------------------  Subscription  Paid-in   Accumulated   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, 1996                       -      -           -   -  14,999,900      15        (15)          -            -          -

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
receivable                              -      -           -   -           -       -         15           -            -         15

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, and warrants     600,000      1           -   -           -       -          -       4,977            -      4,978

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-5
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                                                                             COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                                                  Statement of Stockholders' Deficit
                                                                                                                           Continued
                                                                                    (In thousands, except shares and per share data)
------------------------------------------------------------------------------------------------------------------------------------





                                 Preferred Stock    Preferred Stock                                                          Total
                                     Series A         Series B       Common Stock                  Additional                Stock-
                                ----------------------------------------------------  Subscription  Paid-in   Accumulated   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
restructuring                           -      -        -      -           -       -          -         214            -        214

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                       -      -        -      -           -       -          -           -       (1,786)    (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-6

</TABLE>


<PAGE>
<TABLE>
<CAPTION>


                                                                                             COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                                                  Statement of Stockholders' Deficit
                                                                                                                           Continued
                                                                                    (In thousands, except shares and per share data)
------------------------------------------------------------------------------------------------------------------------------------





                                 Preferred Stock    Preferred Stock                                                          Total
                                     Series A         Series B       Common Stock                  Additional                Stock-
                                ----------------------------------------------------  Subscription  Paid-in   Accumulated   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)
                                  --------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
                                                                                                                                 F-7

</TABLE>



<PAGE>

<TABLE>
<CAPTION>



                                                                   COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                                   Statement of Cash Flows

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



                                                                                             Cumulative
                                                                                            Amounts From
                                                                                            November 15,
                                             Year Ended      Year Ended      Year Ended   1995 (Inception)
                                            December 31,    December 31,    December 31,  to December 31,
                                          ----------------------------------------------------------------
                                                2000            1999            1998            2000
                                          ----------------------------------------------------------------
<S>                                       <C>                 <C>            <C>             <C>

Cash flows from operating activities:
   Net loss                               $         (1,915)   $     (1,786)  $      (3,629)  $     (13,328)
   Adjustments to reconcile net loss to
     cash used in operating activities:
     Inventory impairment                              519               -               -             519
     Impairment of intangibles                         175               -               -             175
     Property and equipment impairment                 513               -               -             513
     Depreciation and amortization                     235             507             408           1,402
     Issuance of Common Stock for services               -               -              25              35
     Gain on troubled debt restructuring                 -               -             214             214
     (Increase) decrease in:
       Accounts receivable                              10             (10)              -               -
       Inventory, net                                    -             166            (325)           (519)
       Accounts payable                                (83)            329            (382)            269
       Accrued expenses                                 56              22            (272)            134
     Increase (decrease) in:
       Unearned revenue                                  -            (187)            450             263
       Other assets                                      -               1              57               -
                                          ----------------------------------------------------------------

         Net cash used in
         operating activities                         (490)           (958)         (3,454)        (10,323)
                                          ----------------------------------------------------------------

Cash flows from investing activities:
   Acquisition of intangible assets                     (7)            (10)            (24)           (213)
   Purchase of property and equipment                    -               -             (15)           (403)
   Acquisition of leasehold improvements                 -               -              (5)           (210)
   Construction of technical equipment                   -             (80)           (721)         (1,491)
   Increase in restricted cash                         (13)            (10)           (122)           (233)
                                          ----------------------------------------------------------------

         Net cash used in
         investing activities                          (20)           (100)           (887)         (2,550)
                                          ----------------------------------------------------------------


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


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

<PAGE>
<TABLE>
<CAPTION>


                                                                   COMMODORE SEPARATION TECHNOLOGIES, INC.

                                                                                   Statement of Cash Flows
                                                                                                 Continued

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



                                                                                             Cumulative
                                                                                            Amounts From
                                                                                            November 15,
                                                                                          1995 (Inception)
                                                      Year Ended December 31,             to December 31,
                                          ----------------------------------------------------------------
                                                2000            1999            1998            2000
                                          ----------------------------------------------------------------
<S>                                       <C>                 <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                              -               -            (300)           (738)
   Borrowings from (repayments to)
     stockholder                                       495             869             (92)          2,510
   Collection of subscription receivable                 -               -               -              15
   Repayment of capital lease obligation                 -              (4)             (9)              -
                                          ----------------------------------------------------------------

         Net cash provided by (used in)
         financing activities                          495             865            (401)         12,874
                                          ----------------------------------------------------------------

(Decrease) increase in cash and cash
  equivalents                                          (15)           (193)         (4,742)              1

Cash and cash equivalents, beginning of
  period                                                16             209           4,951               -
                                          ----------------------------------------------------------------

Cash and cash equivalents, end of period  $              1    $         16   $         209   $           1
                                          ----------------------------------------------------------------

Supplemental disclosure of cash flow
information

   Cash paid during the period for:

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

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

</TABLE>

Non cash investing and financing activities:

The Company  accrued  dividends on preferred  stock of $599, $616 and $300 which
were not declared,  or paid,  for the years ending  December 31, 2000,  1999 and
1998, respectively.

During the year ended  December 31, 2000,  the Company  reduced a payable to its
parent  company,  Commodore  Environmental  Services,  by $227,  in exchange for
assets.

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

See accompanying notes to financial statements.
                                                                             F-9

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   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.

                        Restricted Cash
                        Restricted cash consists of certificates of deposit that
                        act  as a  partial  compensating  balance  for  $600  of
                        letters  of  credit  which  represent  collateral  for a
                        performance  bond related to a contract with the Port of
                        Baltimore.

                        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.  During the year ended  December 31,
                        2000,  the  Company   determined  the  market  value  of
                        inventory  to  be  zero  and  as a  result  recorded  an
                        impairment allowance of $519.


--------------------------------------------------------------------------------
                                                                            F-10

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

                                (In thousands, except shares and 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.  During the
                        year ended  December 31, 2000,  the Company  recorded an
                        impairment  on the  full  book  value  of the  remaining
                        assets  of  $513  due to  the  Company's  assessment  of
                        recoverability of the assets through operations.

                        Intangible Assets
                        The  Company  has   incurred   costs   associated   with
                        application  for  certain   patents.   These  costs  are
                        capitalized and amortized over 17 years. During the year
                        ended  December  31,  2000,  the  Company   recorded  an
                        impairment  on the  full  remaining  book  value  of the
                        assets  of  $175  due to  the  Company's  assessment  of
                        recoverability of the assets through operations.

                        Advance Deposits
                        The Company has  collected a $263  deposit  related to a
                        contract with the Port of Baltimore.  As of December 31,
                        2000 the contract had been terminated.

                        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.  For the year ended  December 31,
                        1999,  substantially  all of the Company's  revenues are
                        from  this  contract.  As  of  December  31,  2000,  the
                        contract was terminated.


--------------------------------------------------------------------------------
                                                                            F-11

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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



1.   Organization       Research and Development Expenditures
     and                Research  and  development  expenditures  are charged to
     Significant        operations as incurred.
     Accounting
     Policies           Income Taxes
     Continued          Income taxes are determined in accordance with Statement
                        of Financial  Accounting  Standards  ("SFAS") 109, which
                        requires  recognition of deferred income tax liabilities
                        and assets for the expected  future tax  consequences of
                        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.  During the year ended December 31, 2000 the
                        Company  recorded  impairment  losses  on  property  and
                        equipment  totaling  $513 and $175 related to intangible
                        assets.


--------------------------------------------------------------------------------
                                                                            F-12

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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



1.   Organization       Stock Compensation
     and                The Company has adopted the  intrinsic  value  method of
     Significant        accounting   for  stock   options  and  warrants   under
     Accounting         Accounting  Principles  Board Opinion No. 25. Under this
     Policies           standard,  no compensation  expense is recorded when the
     Continued          exercise price of options  granted to employees is equal
                        to or greater  than the market  price of the  underlying
                        stock on the date of the grant.  The Company has elected
                        the  disclosure-only   provisions  of  SFAS  123,  which
                        requires  fair value  accounting  for options  issued to
                        employees.

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


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 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 2001 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.

                        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.  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.


--------------------------------------------------------------------------------
                                                                            F-13

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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



3.   Earnings           All   earnings   per   share    amounts    reflect   the
     Per Share          implementation of SFAS 128,  "Earnings per Share," which
                        establishes   standards  for  computing  and  presenting
                        earnings   per  share  and  requires  all  prior  period
                        earnings  per share data be restated to conform with the
                        provisions of the  statement.  Basic  earnings per share
                        are computed by dividing net income  available to common
                        shareholders  by the weighted  average  number of shares
                        outstanding  during the  period.  Diluted  earnings  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.

                                                                  Period From
                                                                  November 15,
                                                                      1995
                               Year Ended December 31,           (Inception) to
                     -------------------------------------------   December 31,
                          2000           1999         1998           2000
                     -----------------------------------------------------------

Net loss                 $  (1,915)  $   (1,786)   $  (3,629)     $   (13,328)
Preferred stock
  dividends                      -            -         (300)            (738)
Dividends on Series
  A Preferred Stock
  (not declared)              (578)        (600)        (300)          (1,478)
Dividends on Series B
  Preferred Stock (not
  declared)                    (21)         (16)           -              (37)
                         -------------------------------------------------------

Net loss applicable
  to common
  shareholders           $  (2,514)  $   (2,402)   $   4,229      $   (15,581)
                     -----------------------------------------------------------


--------------------------------------------------------------------------------
                                                                            F-14

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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

3.   Earnings
     Per Share
     Continued

Weighted average common
  shares outstanding (basic)   11,575,000    11,516,000   11,514,000 11,103,000
Convertible Preferred Stock      (*)          (*)           (*)         (*)
Warrants issued in initial
  public offering                (*)          (*)           (*)         (*)
Employee stock options           (*)          (*)           (*)         (*)
                            ---------------------------------------------------

Weighted average common
  shares outstanding
  (diluted)                    11,575,000    11,516,000   11,514,000 11,103,000
                            ---------------------------------------------------

Loss per share -
  basic and diluted         $        (.22)  $      (.21) $(     .37)$     (1.40)
                            ---------------------------------------------------



                        (*) 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.


4.   Related            On September 28, 1998, Commodore  Environmental Services
     Party              LLC, a Delaware limited  liability  company wholly owned
     Transactions       by    Commodore     Environmental     Services,     Inc.
                        ("Environmental")  acquired  10,000,000 shares of common
                        stock of the Company  representing  approximately 87% of
                        the issued and outstanding  shares of capital stock from
                        Commodore Applied Technologies,  Inc., (Applied),  a 35%
                        owned  affiliate  of  Environmental,  as  part of a debt
                        repayment  plan  between   Environmental   and  Applied.
                        Because of the  outstanding  publicly  traded  preferred
                        stock of the Company,  the resultant purchase accounting
                        adjustments have not been recorded by the Company.

                        In  connection  with   Environmental's   September  1998
                        acquisition  of 87% of the  Company's  common stock from
                        Applied,  Applied transferred a $357 receivable due from
                        the  Company to  Environmental.  In December  1998,  the
                        Company issued 3,570 shares of Series B Preferred  Stock
                        (see Note 7) valued by independent  appraisal at $143 to
                        Environmental in exchange for the forgiveness of $357 of
                        indebtedness.  Because  Environmental  owns  87%  of the
                        common stock of the  Company,  the $214 gain on troubled
                        debt restructuring was recorded as a direct reduction in
                        additional paid in capital.


--------------------------------------------------------------------------------
                                                                            F-15

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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



4.   Related            For the  nine  months  ended  September  30,  1998,  the
     Party              Company was charged  management fees by Applied of $529.
     Transactions       This  management fee is a result of allocated  wages and
     Continued          salaries,   rent,   insurance  (including  director  and
                        officer  liability  insurance) and other  administrative
                        expenses.  Management  fees  were  not  charged  to  the
                        Company by  Environmental  for the years ended  December
                        31, 2000 and 1999 or for the three months ended December
                        31, 1998.

                        The  Company  owed  advances of $179,  $179,  and $27 to
                        Applied  as  of  December  31,  2000,   1999  and  1998,
                        respectively. At December 31, 2000 and 1999, the Company
                        also owed Environmental $985 and $717, respectively, for
                        uncollateralized advances to the Company.


5.   Income             The  Company  provides  for  deferred  income  taxes  on
     Taxes              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 2000 and
                        1999  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 follows:


                                                                     Cumulative
                                    Year Ended December 31,            Amounts
                         ----------------------------------------       Since
                              2000          1999          1998       Inception
                         -------------------------------------------------------

Expected tax benefit
  at federal statutory
  rate                   $         (651)  $      (598)  $    (1,234)  $  (4,528)
State income tax
  benefits, net of
  federal income tax
  benefit                           (87)          (90)         (218)       (745)
Change in valuation
  allowance                         738           688         1,452       5,273
                         -------------------------------------------------------

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


--------------------------------------------------------------------------------
                                                                            F-16

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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


5.   Income             The  components  of  net  deferred  income  taxes  as of
     Taxes              December 31, are as follows:
     Continued

                                                  Year Ended December 31,
                                            -----------------------------------
                                                   2000             1999
                                            -----------------------------------

Net operating loss carryforward             $            5,277   $        4,539
Less: Valuation allowance                               (5,277)          (4,539)
                                            -----------------------------------

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

                        The  Company  conducts  a  periodic  examination  of its
                        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, 2000 and 1999, the Company
                        has  established  a valuation  allowance  for the entire
                        amount of net deferred tax assets.

                        At  December  31,   2000,   the  Company  had  tax  loss
                        carryforwards  of approximately  $13,300.  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  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 accrued as of December 31, 2000.




--------------------------------------------------------------------------------
                                                                            F-17

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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



6.   Royalty            The Company also has a license  agreement  with Lockheed
     Agreements         Martin Energy Research  Corporation,  manager of the Oak
     Continued          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, 2000, $30 of
                        royalties have been paid.


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, 2000
                        and 1999 amounted to $1,478 and $900, an amount equal to
                        $2.60 and $1.50 per share, respectively.  Dividends will
                        not be declared  until there is  sufficient  accumulated
                        earnings.


--------------------------------------------------------------------------------
                                                                            F-18

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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



7.   Capital            Preferred Stock, Series A - Continued
     Structure          The Convertible Preferred Stock, Series A is redeemable,
     Continued          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.

                        The holders of Convertible  Preferred  Stock,  Series A,
                        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.


--------------------------------------------------------------------------------
                                                                            F-19

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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



7.   Capital            Preferred Stock, Series B - Continued
     Structure          The  Convertible  Preferred  Stock,  Series B, has a par
     Continued          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, 2000
                        and 1999  amounted  to  approximately  $37 and  $16,  an
                        amount   equal  to   $10.36   and   $4.50   per   share,
                        respectively.

                        The Convertible Preferred Stock, Series B is convertible
                        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.


--------------------------------------------------------------------------------
                                                                            F-20

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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



7.   Capital            Warrants
     Structure          Each Warrant entitles the holder thereof to purchase, at
     Continued          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 are 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.

                        Representative's Warrants
                        In  connection  with the Initial  Public  Offering,  the
                        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 are  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 are restricted  from sale,  transfer,
                        assignment or hypothecation  prior to that date,  except
                        to officers  of the  Underwriter.  The  Representative's
                        Warrants   provide  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 grant to the
                        holders thereof  certain rights of registration  for the
                        securities issuable upon exercise thereof.


8.   Non                The  Company's  1996 Stock Option Plan (the "1996 Plan")
     Qualified          provides the Board of Directors  the  authority to issue
     Stock Option       incentive and non-qualified stock options to purchase up
     Plan               to  1,350,000  shares of the  Company's  Common Stock to
                        officers, directors, key employees and/or consultants.



--------------------------------------------------------------------------------
                                                                            F-21

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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


8.   Non                Under the 1998  Non-Qualified  Stock Option  Plan,  (the
     Qualified          Option  Plan),  a maximum of  2,000,000  options  may be
     Stock Option       granted to purchase common stock at prices generally not
     Plan               less than the fair market  value of common  stock at the
     Continued          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.

                        Information  regarding  the  option  plan is  summarized
                        below:


                                                                 Weighted
                                                   Number of     Average
                                                    Options   Exercise 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
                                                  ------------


                        Options  exercisable  and available for future grant are
                        as follows:


                                                  December 31,
                                    ----------------------------------------
                                        2000          1999         1998
                                    ----------------------------------------

Options exercisable                       748,750    1,066,460       950,890

Options available for grant             1,176,250      668,950       588,050



--------------------------------------------------------------------------------
                                                                            F-22

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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



8.   Non                In December 1998,  the Company  terminated the 1996 Plan
     Qualified          and  all  of  the   outstanding   options  granted  were
     Stock Option       surrendered to the Company for cancellation. The Company
     Plan               awarded 1,386,950 five year non-qualified  options under
     Continued          the 1998  Plan to  employees,  officers  and  directors.
                        These options carry an exercise price of $.09375,  equal
                        to the  market  price  at the  time of the  awards.  For
                        purposes of the SFAS 123  disclosures  in the  following
                        paragraphs, this transaction was treated as a rescission
                        of the initial awards and a grant of new awards.


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.  Had compensation cost for the
                        Company's  stock option plans been  determined  based on
                        the fair  value at the  grant  date for  awards in 1997,
                        consistent  with  the  provisions  of SFAS  No 123,  the
                        Company's net earnings and earnings per share would have
                        been reduced to the pro forma amounts indicated below:


                                Year Ended December 31, Since         Cumulative
                        ------------------------------------------      Amounts
                             2000          1999          1998          Inception
                        -------------------------------------------------------

Net loss - as reported  $       (1,915)  $   (1,786)   $  (3,629)  $   (13,328)
Net loss - pro forma    $       (1,915)  $   (1,791)   $  (4,303)  $   (18,818)
Loss per share - as
  reported              $         (.22)  $     (.21)   $    (.37)  $     (1.40)
Loss per share - pro
  forma                 $         (.22)  $     (.21)   $    (.43)  $     (1.90)


                        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.  For options granted during 1998, the
                        expected  dividend  yield  of the  stock  is  zero,  the
                        expected  life of the options is 10 years,  the expected
                        volatility  is 60 percent,  and the  expected  risk-free
                        rate  of  return  is  between   4.6  and  6.5   percent,
                        calculated  as  the  rate  offered  on  U.S.  Government
                        securities  with the same term at the  expected  life of
                        the options. No options were granted in 1999 or 2000.

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

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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


9.   Stock Based        The following table summarizes  information  about stock
     Compensation       options outstanding at December 31, 2000:
     Continued

                 Options Outstanding                    Options Exercisable
-------------------------------------------------------------------------------
                              Weighted
                              Average      Weighted                  Weighted
  Range of      Number       Remaining      Average                  Average
  Exercise    Outstanding Contractual Life  Exercise      Number      Exercise
   Prices     at 12/31/00     (Years)        Price    Exercisable     Price
-------------------------------------------------------------------------------

$     5.00        25,000      5.97        $ 5.00          25,000     $ 5.00
$     0.09       798,750      7.96        $ 0.09         723,750     $ 0.09
-------------------------------------------------------------------------------

$ 0.09 - 5.00    823,750      8.92        $  .24         748,750     $ 0.26
-------------------------------------------------------------------------------



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, 2000 financial  statements reflect
                        $263 as a liability  related to the contract.  It is not
                        known if any additional amounts will be incurred.


11.  Recent             In June 1999, the FASB issued SFAS No. 137,  "Accounting
     Accounting         for  Derivative   Instruments  and  Hedging  Activities-
     Pronounce-         Deferral of the  Effective  Date of FASB  Statement  No.
     ments              133."  SFAS 133  establishes  accounting  and  reporting
                        standards  for  derivative   instruments   and  requires
                        recognition of all  derivatives as assets or liabilities
                        in the statement of financial  position and  measurement
                        of  those  instruments  at fair  value.  SFAS 133 is now
                        effective  for  fiscal  years  beginning  after June 15,
                        2000. The Company believes that the adoption of SFAS 133
                        will not  have  any  material  effect  on the  financial
                        statements of the Company.

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

<PAGE>