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, 1999

                         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.)

                  3240 Town Point Drive, Suite 200
                  Kennesaw, Georgia                                30144
                  (Address of Principal Executive Offices)       (Zip Code)

Registrant's telephone number, including area code: (770) 422-1518

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, 2000 with an aggregate market value of  approximately  $473,617 (based
upon the average bid and asked  prices of the Common  Stock on March 22, 2000 as
quoted by the Nasdaq Small Cap Market).

         As of March 22,  2000,  11,515,575  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, 1999

                                TABLE OF CONTENTS

<TABLE>
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<S>                                                                                                               <C>

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


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

                    General.......................................................................................1
                    The SLiM Technology...........................................................................1
                    Contracts.....................................................................................3
                    Markets and Customers.........................................................................4
                    Raw Materials.................................................................................5
                    Backlog.......................................................................................6
                    Research and Development......................................................................6
                    Intellectual Property.........................................................................6
                    Competition...................................................................................6
                    Government Regulation.........................................................................7
                    Environmental Matters.........................................................................7
                    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........................................................................11
                    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...........15

</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
                    Key Employees................................................................................18
                    Board Committees.............................................................................18
                    Compensation of Directors....................................................................19
                    Compliance with Section 16(a) of the Exchange Act............................................19

         ITEM 11. EXECUTIVE COMPENSATION.........................................................................20

                    Summary Compensation.........................................................................20
                    Stock Options................................................................................21
                    Employment Agreements........................................................................21
                    Compensation Committee Interlocks and Insider Participation..................................22
                    Report of the Compensation Committee on Executive Compensation...............................22

         ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................22


         ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................23

                    Organization and Capitalization of the Company...............................................23
                    Offices......................................................................................24
                    Services Agreement...........................................................................24
                    Future Transactions..........................................................................24

PART IV..........................................................................................................25


         ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................................25


SIGNATURES.......................................................................................................28

</TABLE>
<PAGE>

                                     PART I
                                     ------

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

GENERAL

         Commodore  Separation  Technologies,  Inc., a Delaware corporation (the
"Company"),  has  developed  and  is  in  the  process  of  commercializing  its
separation  technology and recovery system known as SLiM(TM)  (supported  liquid
membrane). Based on its continuing 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.  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, 2000,  approximately 87% 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.

         The  Company  was  incorporated  in  Delaware  in  November  1995.  The
Company's  principal  executive  offices are  located at 3240 Town Point  Drive,
Suite 200, Kennesaw,  Georgia 30144, and its telephone number at that address is
(770) 422-1518.

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  which 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.

                                       1
<PAGE>

         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 which  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 which
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;

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:


                                       2
<PAGE>
<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
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 is currently
investigating  alternatives to the third party  technologies 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 has 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  provides  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  has been  delivered to the site.  Installation  was completed in June
1999 and is  currently in its initial  startup  trials.  Throughout  the initial
startup  trials at the Dundalk  Marine  Terminal,  the SLiM  equipment  has 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 is currently investigating  alternative  technologies,  in
combination  with SLiM or  solely,  to  effectively  meet the  "total  chromium"
removal limits specified by the Dundalk Contract.

                                       3
<PAGE>

         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  which  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  waste water  stored at the DOE's 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

         Based on market data  compiled by the  Company,  the Company  estimates
that,  as of  December  31,  1999,  there  were  approximately  7,000  companies
operating metal plating and metal finishing  facilities in the United States and
an additional 1,000 such facilities in Canada. Based on estimated sales by these
facilities,  the Company believes that on average each of these facilities could
utilize the Company's SLiM technology on a selected basis.  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  or  greater  than 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

         During its initial  commercialization  phase,  the  Company  intends 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  may  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.  Although  the Company is focusing its initial  marketing  efforts on
domestic  businesses,  the  Company  is also  prepared  to pursue  international
opportunities,  which may arise from successful  presentations  to multinational
corporations or from overseas referrals by domestic entities.

         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.


                                       4
<PAGE>

         Based on  management  studies  and  discussions  with  metals  industry
executives, the Company believes that the major competitive technologies in this
area are  precipitation  and ion  exchange.  Precipitation  generates a metallic
sludge by-product  requiring further treatment prior to landfill  disposal.  Ion
exchange captures anions or cations,  but offers no selectivity  within a group.
Further,  ion exchange is only  approximately 90% efficient.  By contrast,  SLiM
does not generate harmful  metallic sludges and, in some cases,  enables process
water  recycling  while also  enabling  recovery of valuable  raw  materials  to
approximately 99% efficiency.  As costs of environmental  compliance continue to
mount,  the  Company  expects  SLiM to become a  preferred  alternative  to some
existing metals separation methods. 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 November  1997 and February  1998,  the Company was awarded its
first two commercial contracts for the removal of chromium-contaminated leachate
at Baltimore  Harbor.  In the case of a project,  such as the  Baltimore  Harbor
project,  it is  expected  that  the  remediation  technology  will  be  applied
continuously  over a period of many years,  until the subject  contamination (in
the case of the Baltimore  Harbor,  chromium  leaching from underlying soil into
the  aquifer)  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,  who can provide  technical and  professional  expertise,  market
presence and credibility.  The Company has successfully  demonstrated  selective
radionuclide capabilities on a limited basis.

         Biochemicals Separation and Recovery. SLiM may have capabilities in the
separation  and  recovery of  biochemicals,  including  phenylalanine  (an amino
acid). The Company believes that such capabilities, although untested, extend to
other biochemicals such as proteins, other amino acids, antibiotics, glycerides,
fatty acids,  drug  delivery  vehicles and other  pharmaceuticals.  Mixed wastes
containing  these  materials  are  generated in both  research  and  development
functions and in  manufacturing  functions.  These  materials  have  substantial
value,  and the Company  intends to  emphasize  both the value of the  recovered
materials and the enhanced and speedier  environmental  compliance attributes of
SLiM in its marketing efforts.

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.

BACKLOG

         At December 31, 1999,  total backlog for the Company was  approximately
$300,000.  All of such backlog represents work for which the Company has entered
into a signed  agreement or purchase order with respect  thereto or has received
an order to proceed with work up to a specified  dollar  amount,  and represents
work which the Company  expects will be  completed in the next 12 months.  While
the Company  expects that backlog  amounts will result in revenue,  no assurance
can be given that all amounts  included in backlog will  ultimately be realized,
even if covered by written contracts or work orders.

                                       5
<PAGE>

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 $338,000, $1,299,000, $817,000 and
$985,000  for the years ended  December  31, 1999 and 1998,  for the  transition
period from July 1 to December  31, 1997 (the  "Transition  Period") and for the
year ended June 30, 1997, 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 which
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 which 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 $15.0  million per
occurrence  and $15.0 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.

                                       7
<PAGE>

EMPLOYEES

         As of March 22,  2000,  the  Company  had 4  full-time  employees,  two
engineers,  a chemist and a  technician.  None of such  employees are covered by
collective bargaining agreements, and the Company's relations with its employees
are believed to be good.

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

         The Company's  principal executive offices are located in approximately
20,800 square feet of space in Kennesaw,  Georgia (near  Atlanta)  under a lease
expiring in February 2002, which the Company began occupying in March 1997. Such
space also  serves as the  Company's  administrative  offices and  research  and
testing  laboratories.  The  Company  pays  $132,000 in rent per year under such
lease.

         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, 1999, and as of March 22, 2000, 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, 1999.


                                       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, 2000, 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 1998
   January 1 to March 31, 1998.......          $3.50           $1.63         $7.50             $4.13          $1.25           $0.31
   April 1 to June 30, 1998..........           2.75            1.19          5.00              2.00           0.56            0.22
   July 1 to September 30, 1998......           2.00            0.06          3.00              1.13           0.34            0.02
   October 1 to December 31, 1998....           0.25            0.03          0.75              0.03           0.03            0.03

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, 1996 and 1997, and as of December 31, 1997 and 1998 and 1999, for the period
from November 15, 1995 (date of inception) to June 30, 1996,  for the year ended
June 30, 1997,  for the  six-month  period  ended  December 31, 1997 and for the
years ended  December 31, 1998 and 1999 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>


                                        November 15,
                                            1995
                                          (date of                           Six Months Ended
                                          inception)    Year Ended             December 31,            Year Ended       Year Ended
Statement of Operations Data            to June 30,       June 30,     -------------------------       December 31,     December 31,
(1):                                         1996          1997            1996           1997            1998             1999
                                        -----------    -----------      ----------    -----------     -------------    -------------
                                                                        (unaudited)

<S>                                      <C>          <C>              <C>            <C>              <C>              <C>
Costs and expenses............           $   (60,000) $ (3,265,000)    $  (857,000)   $(2,961,000)     $ (3,749,000)    $(2,141,000)

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

Other income
  And (expense)...............                (1,000)       94,000           3,000        195,000           101,000          18,000

Net loss......................               (61,000)   (3,171,000)       (854,000)    (2,766,000)       (3,629,000)     (1,786,000)

Net loss per share--basic
   And diluted (2)............                  (.01)         (.32)           (.09)          (.27)             (.37)           (.21)

Weighted Average Number of
   Shares.....................            10,000,000    10,375,000      10,000,000     11,502,000        11,514,000      11,516,000

</TABLE>
<TABLE>
<CAPTION>


Balance Sheet Data:                                                                 December 31,      December 31,    December 31,
                                        June 30, 1996        June 30, 1997             1997               1998            1999
                                        -------------        -------------          ------------      ------------    ------------
<S>                                         <C>             <C>                      <C>             <C>            <C>

Working capital (deficit)..........         $(81,000)       $ 7,817,000              $ 4,462,000     $   549,000    $    (824,000)

Total assets.......................           23,000          9,850,000                6,660,000       2,665,000        1,908,000

Long-term liabilities..............               --             18,000                   13,000           4,000          916,000

Deficit accumulated during
development stage..................          (61,000)        (3,232,000)              (5,998,000)     (9,627,000)     (11,413,000)

Stockholders' equity (deficit).....          (61,000)         8,708,000                5,652,000       2,105,000         (597,000)

------------------------------------
</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, 1999. 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,  but expects to
generate  additional  revenues  after the  Company  successfully  completes  the
installation  of SLiM units at the Port of  Baltimore.  During  the period  from
November 15, 1995 (date of inception) to December 31, 1999, the Company incurred
a net loss of  $11,413,000.  For the year ended  December 31, 1999,  the Company
incurred a loss of  $1,786,000  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.

         On July 28,  1997,  the  Company  changed  its fiscal  year.  Effective
January 1, 1998, the Company's new fiscal year to a  twelve-month  period ending
December 31.  Previously,  the Company's  fiscal year was a twelve-month  period
ending June 30. The  Transition  Period relates to the six months ended December
31, 1997 and, where applicable,  unaudited  comparative  information for the six
months ended December 31, 1996 has been presented.

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.

         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.


                                       11
<PAGE>

         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 offering.

         Six Months ended December 31, 1997 compared
         to Six Months ended December 31, 1996

         For the six months  ended  December  31,  1997,  the  Company  incurred
$817,000 of research and  development  costs as compared to $412,000 for the six
months ended December 31, 1996. The increase is due to efforts to  commercialize
the Company's technology.

         General and  administrative  expenses for the six months ended December
31, 1997 were $869,000 as compared to $443,000 for the six months ended December
31,  1996.  The  increase  is due to  hiring of  personnel  and  acquisition  of
infrastructure  (e.g.,  office and lab  space) to  commercialize  the  Company's
technology.

         For the six months  ended  December  31,  1997,  the  Company  incurred
$230,000 of sales and  marketing  expense as compared to none for the six months
ended December 31, 1996. This increase is due to the Company's efforts to obtain
new customers and identify markets for applications of its technology.

         For the six months ended  December  31,  1997,  the Company was charged
$911,000 by Applied as a management fee. This fee is a result of allocated wages
and salaries,  rent,  insurance  (including  directors' and officers'  liability
insurance),  and other administrative expenses. The management fees commenced in
April  1997.  See  "Certain  Relationships  and  Related  Transactions--Services
Agreement."


                                       12
<PAGE>

         Interest  income was  $195,000  for the six months  ended  December 31,
1997, as compared to no interest  income for the six month period ended December
31,  1996.  This  increase  resulted  from the  investment  of  proceeds  of the
Company's IPO since April 1997.

         Year ended June 30, 1997 compared to Seven Months
         (November 15, 1995 - Inception) ended June 30, 1996

         For the year ended June 30,  1997,  the  Company  incurred  $985,000 of
research and development costs as compared to $50,000 for the seven months ended
June 30, 1996.  The increase is due to efforts to  commercialize  the  Company's
technology.  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  for the year ended June 30, 1997
were  $1,356,000,  as compared to $10,000  for the seven  months  ended June 30,
1996.   The  increase  is  due  to  hiring  of  personnel  and   acquisition  of
infrastructure  (e.g.,  office and lab  space) to  commercialize  the  Company's
technology.

         For the year ended June 30, 1997,  the Company was charged  $705,000 by
Applied  as a  management  fee.  This fee is a result  of  allocated  wages  and
salaries,   rent,  insurance  (including   directors'  and  officers'  liability
insurance),  and other administrative expenses. The management fees commenced in
April  1997.  See  "Certain  Relationships  and  Related  Transactions--Services
Agreement."

         Other  income for the year ended June 30, 1997 was $8,000,  as compared
to no revenues for the seven months ended June 30, 1996. The Company performed a
site demonstration at a client's facility which provided nominal revenues.

         Interest  income  was  $99,000  for the year ended  June 30,  1997,  as
compared  to no income for the  seven-month  period  ended June 30,  1996.  This
increase  resulted  from the  investment  of proceeds of the Company's IPO since
April 1997.

         Interest  expense  was  $13,000  for the year ended June 30,  1997,  as
compared to $1,000 for the seven-month period ended June 30, 1996. The increased
interest  expense is due to a line of credit extended to the Company to fund the
Company's  operations  pending  completion of its IPO,  which  occurred in April
1997.


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, 1999, the Company purchased or constructed  equipment
totaling  $1,894,000  and has incurred  patent filing and  maintenance  costs of
$206,000. 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 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
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, 2000, owns approximately 49%
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.


                                       13
<PAGE>

         By virtue of the  foregoing  transaction,  the  Company  has 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,  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 $1,786,000,  $3,629,000, $2,766,000
and $3,171,000  for the years ended December 31, 1999,  1998, for the six months
ended December 31, 1997 and for the year ended June 30, 1997, respectively.  The
Company had no  significant  revenues  during the period from  November 15, 1995
(date of  inception)  to December 31, 1999.  Substantially  all of the Company's
losses are attributable to the expenses detailed above. At December 31, 1999 the
Company had a working capital deficit of $824,000 and a stockholders' deficit of
$597,000.  At December  31, 1998 and 1997,  and June 30,  1997,  the Company had
working  capital of  $549,000,  $4,462,000  and  $7,817,000,  respectively,  and
stockholders' equity of $1,805,000, $5,652,000 and $8,708,000, respectively. The
Company's  decrease in working  capital and  stockholders'  equity from June 30,
1997 to December 31, 1999 is principally  due to the net loss for the period and
dividends paid or accrued on the Company's Convertible Preferred Stock.

         The Company has been obtaining  financing from Commodore  Environmental
Services,  Inc.,  the owner of 87% 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,  1999,  the  Company  had tax loss  carryforwards  of
approximately  $11,400,000.  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

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

                                       14
<PAGE>

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-26 of this Annual Report and are incorporated herein by reference.

COMMODORE SEPARATION TECHNOLOGIES, INC.
Financial Statements
December 31, 1999 and 1998



<PAGE>
                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                           Index
--------------------------------------------------------------------------------


                                                                            Page

Report of Tanner + Co.                                                       F-1

Report of PricewaterhouseCoopers LLP                                         F-2

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

Statements of Operations for the years ended December 31, 1999 and 1998,
  for the six months ended December 31, 1997, for the year ended
  June 30, 1997 and cumulative amounts since inception                       F-4

Statements of Stockholders' (Deficit) Equity
  Period November 15, 1995 (date of inception)
  through December 31, 1999                                                  F-5

Statements of Cash Flows for the years ended December 31, 1999 and 1998,
  for the six months ended December 31, 1997, the year ended
  June 30, 1997 and cumulative amounts since inception                       F-7

Notes to Financial Statements                                                F-9

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                    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, 1999 and the related statements of
operations,  stockholders'  (deficit)  equity  and cash  flows for the year then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

We conducted our audit 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 audit provides 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, 1999, and
the results of its  operations  and its cash flows for the year then  ended,  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 and deficits in working capital and  stockholder's
equity raise substantial doubt about its ability to continue as a going concern.
Management's  plans in regard to these matters are also described in note 2. The
accompanying  financial  statements do not include any adjustment  that might be
the result from the outcome of this uncertainly.



                                   TANNER + Co.

Salt Lake City, Utah
February 4, 2000

                                                                             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  balance sheet as of December 31, 1998 and the
related statements of operations,  of stockholders' equity and of cash flows for
the year ended  December  31,1998,  the six months ended  December 31, 1997, the
year ended June 30,  1997 and the period  from  November  15,  1995  (inception)
through  December 31,  1998,  present  fairly,  in all  material  respects,  the
financial position, results of operations and cash flows of Commodore Separation
Technologies,  Inc. (a  development  stage company) at December 31, 1998 and for
the year ended  December  31,1998,  the six months ended  December 31, 1997, the
year ended June 30,  1997 and the period  from  November  15,  1995  (inception)
through  December 31, 1998, in conformity  with  generally  accepted  accounting
principles.  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 of these statements in
accordance with generally accepted auditing standards 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 audits provide a reasonable basis for the opinion  expressed
above.  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,
                                                                       -----------------------------------
                                                                             1999              1998
                                                                       -----------------------------------
              Assets

Current assets:
<S>                                                                    <C>                <C>
     Cash and cash equivalents                                         $              16  $            209
     Restricted cash                                                                 220               210
     Accounts receivable                                                              10                 -
     Inventory                                                                       519               685
     Prepaid and other current assets                                                  -                 1
                                                                       -----------------------------------

                  Total current assets                                               765             1,105

Property and equipment:
     Technical equipment                                                           1,491             1,411
     Office equipment                                                                403               403
     Leasehold improvements                                                          210               210
                                                                       -----------------------------------

                                                                                   2,104             2,024

     Less accumulated depreciation                                                (1,141)             (646)
                                                                       -----------------------------------

Net property and equipment                                                           963             1,378

Intangible assets, net of accumulated
  amortization of $26 and $14                                                        180               182
                                                                       -----------------------------------








                  Total assets                                         $           1,908  $          2,665
                                                                       -----------------------------------


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

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                   COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                                             Balance Sheet

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



         Liabilities and Stockholders' (Deficit) Equity

<S>                                                                      <C>               <C>
Accounts payable                                                         $            352  $            23
Accrued expenses                                                                       78               56
Unearned revenue                                                                      263              450
Due to related parties                                                                896               27
                                                                         ---------------------------------

                  Total current liabilities                                         1,589              556

Accrued dividends                                                                     916              300
Capital lease obligation                                                                -                4
                                                                         ---------------------------------

                  Total liabilities                                                 2,505              860

Commitments and contingencies                                                           -                -

Stockholders' (deficit) equity:
     Preferred  stock,  Series A, $.001 par  value,  10%  cumulative,
       5,000,000 shares authorized, 600,000 shares issued and
       outstanding at December 31, 1999 and 1998                                        1                1
     Preferred stock, Series B, $.001 par value, 6%
       cumulative, 4,000 shares authorized, 3,570 shares
       issued and outstanding at December 31, 1999 and
       1998                                                                             -                -
     Common stock, $.001 par value, 50,000,000 shares
       authorized, 11,515,575 shares issued and
       outstanding at December 31, 1999 and 1998,
       respectively                                                                    11               11
     Additional paid-in capital                                                    10,804           11,420
     Accumulated deficit                                                          (11,413)          (9,627)
                                                                         ---------------------------------

                  Total stockholders' (deficit) equity                               (597)           1,805
                                                                         ---------------------------------

                  Total liabilities and stockholders' (deficit) equity   $          1,908  $         2,665
                                                                         ---------------------------------


----------------------------------------------------------------------------------------------------------
                                                                                                       F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                                                    COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                                  Statements of Operations

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



                                                                                             Cumulative
                                                                                               Amounts
                                                                                                From
                                                                                            November 15,
                                                                Six Months                  1995 (Date of
                                   Year Ended     Year Ended       Ended                    Inception) to
                                  December 31,   December 31,  December 31,    Year Ended   December 31,
                                      1999           1998          1997      June 30, 1997      1999
                                 -------------------------------------------------------------------------

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

Costs and expenses:
   Cost of sales                             541             -              -             -            541
   Research and development                  338         1,299            817           985          3,489
   General and administrative                743         1,096            869         1,356          4,074
   Depreciation and amortization             507           408            134           118          1,167
   Corporate overhead expenses                 -           529            911           705          2,145
   Sales and marketing                        12           417            230            51            710
   Licensing fee                               -             -              -            50             50
                                 -------------------------------------------------------------------------

     Total costs and expenses              2,141         3,749          2,961         3,265         12,176
                                 -------------------------------------------------------------------------

     Loss from operations                 (1,804)       (3,749)        (2,961)       (3,265)       (11,839)

Other income                                   -            19              -             8             27
Interest income                               18           101            195            99            413
Interest expense                               -             -              -           (13)           (14)
                                 -------------------------------------------------------------------------

     Net loss before
       income taxes                       (1,786)       (3,629)        (2,766)       (3,171)       (11,413)

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

Net loss                         $        (1,786) $     (3,629) $      (2,766) $     (3,171) $     (11,413)
                                 -------------------------------------------------------------------------

Net loss per share -
  basic and diluted              $          (.21) $       (.37) $        (.27) $       (.32) $       (1.21)
                                 -------------------------------------------------------------------------

Weighted average number of
  shares outstanding ( in
  thousands)                              11,516        11,514         11,502        10,375         10,786
                                 -------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
                                                                                                       F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                     COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                 Statement of Stockholders' (Deficit) Equity

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

                                       Preferred Stock         Preferred Stock
                                           Series A                Series B              Common Stock
                                   -------------------------------------------------------------------------
                                      Shares      Amount      Shares      Amount      Shares      Amount
                                   -------------------------------------------------------------------------

<S>                                     <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

Reverse stock split of 1.50 shares
for one share on November 26, 2996            -           -           -           -  (5,000,000)         (5)

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

Balance, June 30, 1996                        -           -           -           -  10,000,000          10

Collection of subscription                    -           -           -           -           -           -
receivable

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

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

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

Dividend on preferred stock,
Series A                                      -           -           -           -           -           -

Net loss for the year ended
June 30, 1997                                 -           -           -           -           -           -
                                   -------------------------------------------------------------------------

Balance, June 30, 1997                  600,000           1           -           -  11,500,000          11
</TABLE>
<TABLE>
<CAPTION>
                                                                                    Total
                                                                               Stock-holders'
                                                      Additional                  (Deficit)
                                       Subscription    Paid-in     Accumulated
                                        Receivable     Capital       Deficit       Equity
                                      ---------------------------------------------------------

<S>                                          <C>           <C>         <C>            <C>
Common stock issued for cash on
November 15, 1995 (inception) at $1
per share                                    $     -       $     -     $      -       $      -

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

Reverse stock split of 1.50 shares
for one share on November 26, 2996                 -             5            -              -

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

Balance, June 30, 1996                          (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                                       -         6,108            -          6,109

Proceeds from sale of preferred
stock, Series A, and warrants                      -         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                             -        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) Equity
                                                                                              Continued
                                                       (In thousands, except shares and per share data)
-------------------------------------------------------------------------------------------------------





                                       Preferred Stock         Preferred Stock
                                           Series A                Series B              Common Stock
                                   -------------------------------------------------------------------------
                                      Shares      Amount      Shares      Amount      Shares      Amount
                                   -------------------------------------------------------------------------
<S>                                     <C>              <C>      <C>    <C>     <C> <C>                <C>
Issuance of common stock                      -           -           -           -       3,650           -

Dividend on preferred stock,
Series A                                      -           -           -           -           -           -

Net loss for the six months ended
December 31, 1997                             -           -           -           -           -           -
                                   -------------------------------------------------------------------------

Balance, December 31, 1997              600,000           1           -           -  11,503,650          11

Issuance of common stock                      -           -           -           -      11,925           -

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

Gain on troubled debt restructuring           -           -           -           -           -           -

Dividends on preferred stock,
Series A                                      -           -           -           -           -           -

Net loss for the year ended
December 31, 1998                             -           -           -           -           -           -
                                   -------------------------------------------------------------------------

Balance, December 31, 1998              600,000           1       3,570           -  11,515,575          11

Dividends on preferred stock,
  Series A                                    -           -           -           -           -           -

Dividends on preferred stock,
 Series B                                     -           -           -           -           -           -

Net loss for the year ended
December 31, 1999                             -           -           -           -           -           -
                                   -------------------------------------------------------------------------

Balance, December 31, 1999              600,000          $1       3,570  $        -  11,515,575         $11
                                   =========================================================================

</TABLE>
<TABLE>
                                                                             Total
                                                                         Stock-holders'
                                                 Additional                (Deficit)
                                   Subscription    Paid-in   Accumulated
                                    Receivable     Capital     Deficit      Equity
                                   ----------------------------------------------------

<S>                                      <C>          <C>       <C>           <C>
Issuance of common stock                       -           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                     -       11,638     (5,998)        5,652

Issuance of common stock                       -           25           -           25

Issuance of preferred stock,
Series B                                       -          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                     -       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               $     -      $10,804   $(11,413)     $  (597)
                                   ====================================================

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


                                                            COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                           Statements of Cash Flows

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




                                                                                         Cumulative
                                                                                        Amounts From
                                                                                        November 15,
                                                            Six Months                      1995
                                Year Ended    Year Ended      Ended                    (Inception) to
                               December 31,  December 31,  December 31,   Year Ended    December 31,
                                   1999          1998          1997      June 30, 1997      1999
                              -----------------------------------------------------------------------
<S>                           <C>             <C>           <C>           <C>            <C>
Cash flows from operating
  activities:
   Net loss                   $       (1,786) $     (3,629) $     (2,766) $      (3,171) $    (11,413)
   Adjustments to reconcile
     net loss to cash used
     in operating
     activities:
     Depreciation and
       amortization                      507           408           134            118         1,167
     Issuance of Common
       Stock for services                  -            25            10              -            35
     Gain on troubled debt
       restructuring                       -           214             -              -           214
     (Increase) decrease in:
       Accounts receivable               (10)            -             -              -           (10)
       Inventory, net                    166          (325)         (360)             -          (519)
       Accounts payable                  329          (382)          117            270           352
       Accrued expenses                   22          (272)          187            129            78
     Increase (decrease) in:
       Unearned revenue                 (187)          450             -              -           263
       Other assets                        1            57           (10)           (48)            -
                              -----------------------------------------------------------------------

         Net cash used in
         operating
         activities                     (958)       (3,454)       (2,688)        (2,702)       (9,833)
                              -----------------------------------------------------------------------

Cash flows from investing
  activities:
   Acquisition of intangible
     assets                              (10)          (24)         (114)           (48)         (206)
   Purchase of property and
     equipment                             -           (15)          (33)          (352)         (403)
   Acquisition of leasehold
     improvements                          -            (5)           (2)          (203)         (210)
   Construction of technical
     equipment                           (80)         (721)         (279)          (404)       (1,491)
   Increase in unrestricted
     cash                                (10)         (122)          (88)             -          (220)
                              -----------------------------------------------------------------------

         Net cash used in
         investing activities           (100)         (887)         (516)        (1,007)       (2,530)
                              -----------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
                                                                                                  F-7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                             COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                            Statements of Cash Flows
                                                                                           Continued

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



                                                                                         Cumulative
                                                                                        Amounts From
                                                                                        November 15,
                                                            Six Months                      1995
                                Year Ended    Year Ended      Ended                    (Inception) to
                               December 31,  December 31,  December 31,   Year Ended    December 3,
                                   1999          1998          1997      June 30, 1997      1999
                              -----------------------------------------------------------------------
<S>                           <C>             <C>           <C>           <C>            <C>
Cash flows from financing
  activities:
   Proceeds from sale of
     common stock and
     warrants                              -             -             -          6,109         6,109
   Proceeds from sale of
     preferred stock and
     warrants                              -             -             -          4,978         4,978
   Preferred stock dividend                -          (300)         (300)          (138)         (738)
   Borrowings from
    (repayments to)
    stockholder                          869           (92)         (433)         1,617         2,015
   Collection of
     subscription receivable               -             -             -             15            15
   Repayment of capital
     lease obligation                     (4)           (9)           (5)            18             -
                              -----------------------------------------------------------------------

         Net cash provided by
         (used in) financing
         activities                      865          (401)         (738)        12,599        12,379
                              -----------------------------------------------------------------------

(Decrease) increase in cash
  and cash equivalents                  (193)       (4,742)       (3,942)         8,890            16

Cash and cash equivalents,
  beginning of period                    209         4,951         8,893              3             -
                              -----------------------------------------------------------------------

Cash and cash equivalents,
  end of period               $           16  $        209  $      4,951  $       8,893  $         16
                              -----------------------------------------------------------------------

Supplemental disclosure of
cash flow information

   Cash paid during the
   period for:

         Interest paid        $          -    $      -      $   -         $          13    $       14
                              -----------------------------------------------------------------------

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


Non cash investing and financing activities:

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


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


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   Notes to Financial Statements

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


1.   Organization and Significant Accounting Policies

Organization
Commodore  Separation  Technologies,  Inc. (a  development  stage  company) (the
"Company") was incorporated on November 15, 1995, under the laws of the State of
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 compensating
balance  for  $600  of  letters  of  credit  which  represent  collateral  for a
performance bond related to the Port of Baltimore contract.


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


--------------------------------------------------------------------------------
                                                                             F-9

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



1.   Organization and Significant Accounting Policies
     Continued

Property and Equipment
Property and equipment are stated at cost.  Major additions and improvements are
capitalized  and  minor  replacements,  maintenance  and  repairs  which  do not
increase the useful  lives of the assets are expensed as 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.


Intangible Assets
The Company has incurred costs  associated with application for certain patents.
These costs are capitalized and amortized over 17 years.


Unearned Revenue
The Company has collected a $263 deposit related to a contract.  Such amount has
been deferred until the commencement of the contract.


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.  Substantially  all of the
Company's revenues are from this contract for the year ended December 31, 1999.


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


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

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



1.   Organization and Significant Accounting Policies
     Continued

Income Taxes
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.


Stock Compensation
The Company  has adopted the  intrinsic  value  method of  accounting  for stock
options and warrants  under  Accounting  Principles  Board Opinion No. 25. Under
this standard,  no  compensation  expense is recorded when the 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.


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

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



1.   Organization and Significant Accounting Policies
     Continued

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.


Fair Value of Financial Instruments
The fair value of financial  instruments  is  determined by reference to various
market data and other valuation techniques as appropriate. Financial instruments
include cash,  cash  equivalents  and restricted  cash. As of December 31, 1999,
recorded book value approximates fair value.


Reclassifications
Certain  balances in the prior  periods have been  reclassified  to agree to the
1999 presentation.


2.   Going Concern

The  accompanying  financial  statements have been prepared 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 2000.  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-12

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



3.   Earnings Per Share

All earnings per share amounts reflect the implementation of SFAS 128, "Earnings
per Share,"  which  establishes  new  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.


<TABLE>
<CAPTION>

                                                                              Period From
                                                    Six Months     Year      November 15,
                       Year Ended     Year Ended      Ended        Ended   1995 (Inception)
                      December 31,   December 31,  December 31,  June 30,   to December 31,
                          1999           1998          1997        1997          1999
                     -----------------------------------------------------------------------

<S>                  <C>              <C>           <C>           <C>        <C>
Net loss             $        (1,786) $     (3,629) $     (2,766) $  (3,171) $       (11,413)
Preferred stock
  dividends                        -          (300)         (300)      (138)            (738)
Dividends on Series
  A Preferred Stock
  (not declared)                (600)         (300)            -          -             (900)
Dividends on Series
  E Prefered Stock
  (not declared)                 (16)            -             -          -              (16)
                     -----------------------------------------------------------------------

Net loss applicable
  to common
  shareholders       $        (2,402) $      (4,229) $    (3,066) $  (3,309) $      (13,067)
                     ----------------------------------------------------------------------
</TABLE>

<TABLE>
<S>                          <C>         <C>         <C>         <C>         <C>
Weighted average common
  shares outstanding (basic) 11,516,000  11,514,000  11,502,000  10,375,000  10,786,000
Convertible Preferred Stock    (*)         (*)         (*)         (*)          (*)
Warrants issued in initial
  public offering              (*)         (*)         (*)         (*)          (*)
Employee stock options         (*)         (*)         (*)         (*)          (*)
                          -------------------------------------------------------------

Weighted average common
  shares outstanding
  (diluted)                  11,516,000  11,514,000  11,502,000  10,375,000  10,786,000
                          -------------------------------------------------------------

Loss per share  (basic)   $        (.21) $     (.37) $     (.27) $     (.32) $    (1.21)
                          -------------------------------------------------------------

Loss per share (diluted)  $        (.21) $     (.37) $     (.27) $     (.32) $    (1.21)
                          -------------------------------------------------------------
</TABLE>

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

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

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



4.   Related Party Transactions

On September 28, 1998, Commodore  Environmental Services LLC, a Delaware limited
liability  company  wholly  owned  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.


For the nine months ended  September 30, 1998, the six months ended December 31,
1997 and the year ended June 30, 1997, the Company was charged  management  fees
by Applied of $529, $911 and $705, respectively. This management fee is a result
of allocated wages and salaries, rent, insurance (including director and officer
liability  insurance) and other  administrative  expenses.  The management  fees
commenced  in April  1997.  Management  fees were not  charged to the Company by
Environmental for the year ended December 31, 1999 or for the three months ended
December 31, 1998.


The Company  owed  advances of $179,  $27 and $262 to Applied as of December 31,
1999, 1998 and 1997,  respectively.  At December 31, 1999, the Company also owed
Environmental $717 for uncollateralized advances to the Company.



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

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



5.   Income Taxes

The Company  provides for deferred income taxes on temporary  differences  which
represent  tax  effects of  transactions  reported  for tax  purposes in periods
different than for book purposes.  The difference between the income tax benefit
at statutory  rates for 1999 and 1998 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:

<TABLE>
<CAPTION>
                                                   Six Months     Year   Cumulative
                      Year Ended     Year Ended       Ended       Ended    Amounts
                     December 31,   December 31,  December 31,  June 30,    Since
                         1999           1998           1997       1997    Inception
                    ----------------------------------------------------------------

<S>                 <C>              <C>           <C>            <C>      <C>
Expected tax benefit
  at federal
  statutory rate    $          (598) $     (1,234) $        (941) $(1,078) $  (3,880)
State income tax
  benefits, net of
  federal income tax
  benefit                       (90)         (218)          (166)    (190)      (659)
Change in valuation
  allowance                     688         1,452          1,107    1,268      4,539
                    ----------------------------------------------------------------

Income taxes        $             -  $          -  $           -   $    -  $       -
                    ----------------------------------------------------------------
</TABLE>


The components of the net deferred income tax as of December 31, are as follows:



                                                Year Ended        Year Ended
                                               December 31,      December 31,
                                                   1999              1998
                                            ------------------------------------

Net operating loss carryforward             $            4,539  $         3,851
Less: Valuation allowance                               (4,539)          (3,851)
                                            ------------------------------------

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



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

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



5.   Income Taxes
     Continued

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, 1999
and 1998,  the Company has  established  a  valuation  allowance  for the entire
amount of net deferred tax assets.


At December 31, 1999, the Company had tax loss  carryforwards  of  approximately
$13,400.  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 Agreements

The Company has an agreement  with a former  officer of 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, 1999.


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

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



6.   Royalty Agreements
     Continued

The Company also has a license  agreement with Lockheed  Martin Energy  Research
Corporation,  manager of the Oak Ridge National Laboratory, a U.S. Department of
Energy  national  laboratory,  for which the Company paid Lockheed  Martin a $50
licensing  fee  during  the year ended  June 30,  1997.  Under  this  agreement,
Lockheed  Martin is to  receive a  royalty  of 2% of net sales of the  Company's
products or processes  covered under the agreement (less allowances for returns,
discounts,  commissions,  freight,  and  excise or other  taxes) up to total net
sales of $4,000 and 1% of net sales  thereafter.  In  addition,  the Company has
agreed  to  guarantee  Lockheed  Martin,  commencing  in the  third  year of the
agreement,  an annual minimum  royalty of $15. No royalties have been paid as of
December 31, 1999.


7.   Capital Structure

In April 1997,  the Company  completed an Initial  Public  Offering of 1,500,000
units each consisting of one share of Common Stock and a Warrant to purchase one
share of  Common  Stock,  and  600,000  units  each  consisting  of one share of
Convertible  Preferred  Stock,  Series A, and a Warrant to purchase one share of
Common Stock.


Proceeds from the offering were as follows:


                                              Common          Preferred
                                              Units             Units
                                        -----------------------------------

Proceeds allocated to shares            $            5,564  $         5,214
Proceeds allocated to warrants                       2,086              846
                                        -----------------------------------

         Gross proceeds                              7,650            6,060

Less: Discount and offering
  expense                                            1,541            1,082
                                        -----------------------------------

         Net proceeds                   $            6,109  $         4,978
                                        -----------------------------------



The  underwriter  of the offering  exercised its right to purchase an additional
315,000 Warrants for $32.


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

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



7.   Capital Structure
     Continued

Preferred Stock, Series A
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 in 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, 1999 and 1998  amounted to $900 and $300,  an amount equal to $1.50
and $.50 per share, respectively.  Dividends will not be declared until there is
sufficient accumulated earnings.


The Convertible  Preferred  Stock,  Series A is redeemable,  in whole but not in
part,  by the Company upon 30 days prior  written  notice after April 3, 2000 at
$10.00 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  $10.00 per share or,  after  April 3, 2001,  at certain  cash
redemption prices plus accumulated and unpaid dividends.


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

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



7.   Capital Structure
     Continued

Preferred Stock, Series A - Continued
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 $10.00  per share  (plus  accumulated  and  unpaid
dividends) before any distribution to holders of the Common Stock or any capital
stock ranking junior to the convertible Preferred Stock, Series A.


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


The Convertible  Preferred  Stock,  Series B, has a par value of $.001 per share
and a stated value of $100.00 per share. Cumulative dividends are payable at the
rate of $6.00 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, 1999
amounted to approximately $16, an amount equal to $4.50 per share.


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

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



7.   Capital Structure
     Continued

Preferred Stock, Series B - Continued
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 $105.00 per
share, plus accumulated and unpaid dividends.


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


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


Warrants
Each Warrant entitles the holder thereof to purchase,  at any time from April 3,
1998  through  April 3, 2002,  one share of Common Stock at a price of $5.50 per
share,  subject to  adjustment.  Commencing  October 3, 1998,  the  Warrants 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  $15.00  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.


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

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



7.   Capital Structure
     Continued

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 $12.00 per share of Convertible Preferred
Stock,  $6.00 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 Qualified Stock Option Plan

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


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


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

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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

8.   Non Qualified Stock Option Plan
     Continued

Information regarding the option plan is summarized below:


                                                              Weighted
                                                               Average
                                            Number of         Exercise
                                             Options            Price
                                        -----------------------------------
Outstanding at year ended
  June 30, 1997                         $          996,689  $          4.42
     Granted                                     1,042,252  $          4.31
     Exercised                                           -
     Forfeited                                           -
     Rescinded                                    (996,689) $          4.42
                                        ------------------

Outstanding at six months ended
  December 31, 1997                              1,042,252  $          4.31
     Granted                                     1,461,950  $          0.19
     Exercised                                           -
     Forfeited                                           -
     Rescinded                                  (1,092,252) $          4.14
                                        ------------------

Outstanding at year ended
  December 31, 1998                              1,411,950  $          0.19
     Granted                                             -
     Exercised                                           -
     Forfeited                                     (80,900) $          0.10
     Rescinded                                           -
                                        ------------------
Outstanding at year ended
  December 31, 1999                     $        1,331,050  $          0.19
                                        ------------------



Options exercisable and available for future grant are as follows:


                          December 31,  December 31,  December 31,   June 30,
                              1999          1998          1997         1997
                          -----------------------------------------------------

Options exercisable         1,066,460     950,890       384,313       217,564



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

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



8.   Non Qualified Stock Option Plan
     Continued

In  December  1998,  the  Company  terminated  the  1996  Plan  and  all  of the
outstanding  options granted were  surrendered to the Company for  cancellation.
The Company  awarded  1,386,950 five year  non-qualified  options under 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 Compensation

The Company has adopted the disclosure-only provisions 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 1999,  1998,
and 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:


                                            Six Months                Cumulative
                Year Ended    Year Ended      Ended      Year Ended     Amounts
               December 31,  December 31,  December 31,   June 30,       Since
                   1999          1998          1997         1997       Inception
              ------------------------------------------------------------------

Net loss -
  as reported $       (1,786) $ (3,629)    $  (2,766)     $  (3,171) $  (11,413)
Net loss -
  pro forma   $       (1,791) $ (4,303)    $  (3,114)     $  (3,706) $  (12,914)
Loss per
  share - as
  reported    $         (.21) $   (.37)    $    (.27)     $    (.32) $    (1.21)
Loss per
  share - pro
  forma       $         (.21) $   (.43)    $    (.30)     $    (.37) $    (1.35)



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

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



9.   Stock Based Compensation

     Continued
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.
The  expected  dividend  yield of the stock is zero,  the  expected  life of the
options is 9 years for the year ended  December 31, 1999,  10 years for the year
ended  December 31, 1998, 9 years for the six months ended December 31, 1997 and
5 years for the year ended June 30, 1997, 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.


The following table summarizes  information  about stock options  outstanding at
December 31, 1999:



                 Options Outstanding                    Options Exercisable
-------------------------------------------------------------------------------
                              Weighted
                              Average      Weighted                  Weighted
  Range of      Number       Remaining      Average                  Average
  Exercise    Outstanding Contractual Life Exercise      Number      Exercise
   Prices     at 12/31/99     (Years)        Price    Exercisable     Price
-------------------------------------------------------------------------------

$        5.00       25,000      6.97        $ 5.00           25,000   $ 5.00
$        0.09    1,306,050      8.96        $  .09        1,041,460   $ 0.09
-------------------------------------------------------------------------------

$ 0.09 - 5.00    1,331,050      8.92        $  .19        1,066,460   $ 0.21
-------------------------------------------------------------------------------




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

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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



10.  Commitments and Contingencies Leases

The Company is committed under a non-cancelable  lease for office space.  Future
obligations under the lease are as follows:


                                                              Operating
                                                                Lease
Fiscal Year Ended                                             Payments
                                                          -----------------

         2000                                             $             132
         2001                                                           132
                                                          -----------------

                                                          $             264
                                                          -----------------



Rent expense  approximated  $114 for the years ended December 31, 1999 and 1998,
$56 for the six months  ended  December 31, 1997 and $72 for the year ended June
30, 1997.


Litigation
The  Company  has no matters of  litigation  arising in the  ordinary  course of
business which in the opinion of management will have a material  adverse effect
on its financial condition, results of operations or cash flows.



--------------------------------------------------------------------------------
                                                                            F-25

<PAGE>


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.

                                                   Notes to Financial Statements
                                                                       Continued

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


11.  Comparative Financial Information (Unaudited)

The selected  financial data included in the following  table for the year ended
December 31, 1997 is unaudited and, in the opinion of the  management,  includes
all adjustments  consisting of only normal recurring adjustments necessary for a
fair presentation of such data.


                                                            (Unaudited)
                                                            Year Ended
                                                           December 31,
                                                               1997
                                                        -------------------

Cost and expenses                                       $            (5,369)
Revenues                                                                  -
Interest income                                                         294
Interest expense                                                         (8)
Income taxes                                                              -
                                                        -------------------

         Net loss                                       $            (5,083)
                                                        -------------------

         Net loss per share                             $              (.46)
                                                        -------------------





--------------------------------------------------------------------------------
                                                                            F-26

<PAGE>


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,  2000,  are as
follows:
<TABLE>
<CAPTION>

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

Paul E. Hannesson.....................       59    Chairman of the Board and Chief Executive Officer

Carl  O. Magnell......................       57    President and Chief Operating Officer

James M. DeAngelis....................       39    Senior Vice President - Sales & Marketing

Bentley J. Blum.......................       58    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 was appointed  Chairman of the Board in November  1996.  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.  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  also
currently  serves as the  Chairman of the Board and Chief  Executive  Officer of
Commodore  Solution  Technologies,  Inc., a wholly owned,  subsidiary of Applied
("Solution"), and Commodore CFC Technologies, Inc., a wholly-owned subsidiary of
Applied ("CFC Technologies").  Mr. Hannesson was a private investor and business
consultant, from 1990 to 1993, and was also an officer and director of Specialty
Retail  Services,  Inc., from 1989 to August 1991. He also served as Chairman of
the Board of Lanxide Corporation, a company which specializes in the manufacture
of ceramic bonding and refractory materials.  ("Lanxide"), from 1983 to February
1998. 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.


                                       17
<PAGE>

         Bentley J. Blum has been a director of the Company  since  August 1996.
Mr. Blum has served as a director of Applied  since March 1996 and served as its
Chairman  of the Board from March to  November  1996.  Mr.  Blum has served as a
director  of  Environmental  since 1984 and served as its  Chairman of the Board
from 1984 to  November  1996.  Mr. Blum also  currently  serves as a director of
Solution  and CFC  Technologies.  For  more  than 15  years,  Mr.  Blum has been
actively  engaged  in  real  estate  acquisitions  and  currently  is  the  sole
stockholder  and  director  of a number of  corporations  which hold real estate
interests,  oil drilling  interests and other corporate  interests.  Mr. Blum is
also a director of Lanxide;  Federal Resources  Corporation,  a company formerly
engaged in manufacturing, retail distribution and natural resources development;
Specialty Retail  Services,  Inc., a former  distributor of professional  beauty
products;   and  North  Valley   Development  Corp.,  an  inactive  real  estate
development company. 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.

KEY EMPLOYEES

         The  names  and ages of the key  employees  of the  Company,  and their
positions with the Company as of March 22, 2000, are as follows:

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

Michael D. Kiehnau, P.E.......       38    Vice President - Finance & Operations

Andrew P. Oddi................       38    Vice President and Treasurer


         Michael D.  Kiehnau,  P.E.  was  appointed  Vice  President--Finance  &
Operations  of the Company in April 1997,  after having  served as the Company's
Chief  Financial  Officer from  September  1996 to January 1997, and as its Vice
President--Operations  from  January to March  1997.  From August 1992 to August
1996,  Mr.  Kiehnau  served as a project  manager  for  Brown & Root,  Inc.  (an
engineering and construction firm), and from 1983 to 1990, Mr. Kiehnau served in
various  engineering  capacities  with the U.S.  Army Corps of  Engineers in the
United States,  Europe and Central America. From 1990 to 1992, Mr. Kiehnau was a
full-time  student.  Mr.  Kiehnau  holds a B.S.  degree  from the United  States
Military Academy, an M.A. in International Relations from Boston University, and
an M.B.A. from the Harvard Graduate School of Business  Administration.  He is a
licensed professional engineer.

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


                                       18
<PAGE>

BOARD COMMITTEES

         The  Company's  Board of Directors has (i) an Audit  Committee,  (ii) a
Compensation,  Stock Option and Benefits  Committee  and (iii) an Executive  and
Finance Committee.  The  responsibilities  of the Audit Committee,  which, as of
March 3, 2000,  was composed of David L. Mitchell  (Chairman),  Herbert A. Cohen
and William R. Toller,  include  recommending to the Board of Directors the firm
of  independent  accountants  to be retained by the Company,  reviewing with the
Company's  independent  accountants  the  scope  and  results  of their  audits,
reviewing  with  the  independent   accountants  and  management  the  Company's
accounting  and reporting  principles,  policies and  practices,  as well as the
Company's  accounting,  financial and operating controls and staff,  supervising
the Company's  policies  relating to business conduct and dealing with conflicts
of interest relating to officers and directors of the Company. The Compensation,
Stock Option and Benefits Committee, which, as of March 3, 2000, was composed of
William R. Toller  (Chairman),  David L.  Mitchell  and  Herbert A.  Cohen,  has
responsibility  for establishing and reviewing  employee and  consultant/advisor
compensation,  bonuses and  incentive  compensation  awards,  administering  and
interpreting   the  Company's  1996  Stock  Option  Plan,  and  determining  the
recipients,  amounts and other terms  (subject to the  requirements  of the 1996
Stock Option Plan) of options  which may be granted  under the 1996 Stock Option
Plan from time to time and providing  guidance to management in connection  with
establishing  additional  benefit plans. The Executive and Finance Committee was
composed of Paul E. Hannesson, Bentley J. Blum and William R. Toller as of March
3, 2000, and has the authority and responsibility of the full Board of Directors
to supervise and oversee the financial practices and policies of the Company, to
oversee  the  adoption of  significant  accounting  policies,  and to manage the
Company  between  meetings  of  the  Board  of  Directors,  subject  to  certain
limitations.  The  Executive  and Finance  Committee  also has the authority and
responsibility for making  recommendations  to the Board of Directors  regarding
nominees to serve as 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, 1999,  and upon a
review of Forms 5 and amendments  thereto  furnished to the Company with respect
to the year ended December 31, 1999, 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, 1999.


                                       19
<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, 1999 and 1998, the
Transition  Period  and for the fiscal  year  ended June 30,  1997 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             1999            -0-        -0-          -0-            -0-              -0-         -0-          -0-
Chief Executive Officer       1998         94,504(3)     -0-        2,610(5)         -0-          280,000         -0-          -0-
                              1997(1)      80,067(3)  20,270(4)     4,865(5)         -0-              -0-         -0-          -0-
                              1997(2)      49,375(3)  12,500(4)     3,000(5)         -0-          175,000         -0-          -0-

James M. DeAngelis            1999            -0-        -0-          -0-            -0-              -0-         -0-          -0-
Senior Vice President         1998        107,005        -0-          -0-            -0-          187,500         -0-          -0-
                              1997(1)      72,500     20,500          -0-            -0-              -0-         -0-          -0-
                              1997(2)     120,833     20,500          -0-            -0-          101,250         -0-          -0-

Kenneth J. Houle(7)           1999            -0-        -0-          -0-            -0-              -0-         -0-          -0-
Former President & Chief      1998        100,243        -0-          -0-            -0-              -0-         -0-          -0-
Operating Officer             1997(1)      90,000     27,000          -0-            -0-              -0-         -0-          -0-
                              1997(2)      77,596(6)  27,000          -0-            -0-          100,000         -0-          -0-
--------------------

</TABLE>

(1)      On July 28, 1997, the Company  changed its fiscal year-end from June 30
         to December 31. Information is for the Transition Period from July 1 to
         December 31, 1997.

(2)      Information  is presented for the Company's  fiscal year ending on June
         30, 1997.

(3)      Represents the amount of Mr.  Hannesson's  base salary allocated to the
         Company for such period. Mr. Hannesson's total base salary for calendar
         years 1998 and 1997 were $434,500 and $395,000,  respectively.  Certain
         portions  of such  base  salary  were also  allocated  to  Applied  and
         Environmental.     See    "Certain     Relationships     and    Related
         Transactions--Services Agreement."

(4)      Represents  the  amount  of  Mr.  Hannesson's  annual  incentive  bonus
         allocated to the Company for such period.  Mr. Hannesson's total annual
         incentive bonus for calendar year 1997 was $100,000.  Certain  portions
         of such  annual  incentive  bonus were also  allocated  to Applied  and
         Environmental.

(5)      Represents the amount of Mr. Hannesson's automobile allowance allocated
         to the  Company  for such  period.  Mr.  Hannesson's  total  automobile
         allowance  for  calendar  years 1998 and 1997 was $12,000 and  $24,000,
         respectively.  Certain portions of such automobile  allowance were also
         allocated to Applied and Environmental.

(6)      Represents the amount of salary paid to Mr. Houle from January 27, 1997
         (the date on which Mr. Houle was elected  President and Chief Operating
         Officer) to June 30, 1997.

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


                                       20
<PAGE>

STOCK OPTIONS

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

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."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The individuals who served as members of the Compensation, Stock Option
and Benefits  Committee  (the  "Compensation  Committee")  during the year ended
December  31, 1999 were  William R. Toller  (Chairman),  David L.  Mitchell  and
Herbert A. Cohen.  Mr.  Mitchell and Mr.  Cohen  constituted  two-thirds  of the
Compensation,  Stock Option and Benefits  Committees  of Applied at December 31,
1999.

REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

         The  Compensation  Committee  was  established  in  June  1997  and  is
responsible  for, among other things,  establishing  the  compensation  policies

                                       21
<PAGE>

applicable to executive officers of the Company. The Compensation  Committee was
composed of William R. Toller (Chairman), David L. Mitchell and Herbert A. Cohen
at December 31, 1999,  all of whom were  non-employee  directors of the Company.
Mr.  Mitchell and Mr. Cohen also  constituted  two-thirds  of the  Compensation,
Stock Option and Benefits  Committee of Applied at December 31, 1999.  Decisions
on  compensation  of the  executive  officers  of  Applied  were  made  by  such
individuals in their capacities as members of the Compensation, Stock Option and
Benefits  Committee.  On March 28,  2000,  Messrs.  Toller,  Mitchell  and Cohen
resigned  from the Board of  Directors  of the  Company.  All  decisions  of the
Compensation  Committee relating to the compensation of the Company's  executive
officers  are  reviewed  by, and are subject to the final  approval of, the full
Board of Directors of the Company.  During the year ended December 31, 1999, the
Compensation,  Stock Option and Benefits  Committee did not convene nor take any
action relating to compensation of any of the executive officers of the Company.


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 28, 2000 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.............................             12,430,000(4)                      89.1%

Paul E. Hannesson...........................              1,516,727(5)                      10.7%

James M. DeAngelis..........................                303,844(6)                       2.6%

All executive officers and directors
as a group (3 persons)......................             12,899,500                         89.5%

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

* Percentage ownership is less than 1%.

(1)      The address of each of Commodore Environmental Services,  Inc., Bentley
         J.  Blum,  Paul E.  Hannesson,  Kenneth  L.  Adelman,  Ph.D.,  David L.
         Mitchell,  William  R.  Toller  and  Herbert  A. Cohen is 150 East 58th
         Street,  Suite 3400, New York, New York 10155.  The address of James M.
         DeAngelis is 3240 Town Point Drive, Suite 200, Kennesaw, Georgia 30144.
         The address of Andrew P. Oddi is 40 Cutter Mill Road,  Suite 201, Great
         Neck,  New York  11021.  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 52.0% 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.


                                       22
<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 11.1% 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
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  currently  owns 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
which 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  49%  of the
outstanding shares of Applied common stock.  Bentley J. Blum, a director of COES
and the  beneficial  owner of  approximately  52% of the  outstanding  shares of
Environmental common stock, is also a director of Applied and the Company.


                                       23
<PAGE>

         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.

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.


                                       24
<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:


                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                           Index
--------------------------------------------------------------------------------


                                                                            Page

Report of Tanner + Co.                                                       F-1

Report of PricewaterhouseCoopers LLP                                         F-2

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

Statements of Operations for the years ended December 31, 1999 and 1998,
  for the six months ended December 31, 1997, for the year ended
  June 30, 1997 and cumulative amounts since inception                       F-4

Statements of Stockholders' (Deficit) Equity
  Period November 15, 1995 (date of inception)
  through December 31, 1999                                                  F-5

Statements of Cash Flows for the years ended December 31, 1999 and 1998,
  for the six months ended December 31, 1997, the year ended
  June 30, 1997 and cumulative amounts since inception                       F-7

Notes to Financial Statements                                                F-9


         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)


                                       25
<PAGE>

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.

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)


                                       26
<PAGE>

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

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

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

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

22.1              Subsidiaries of the Company.(1)

*27.1             Financial Data Schedule.

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

* 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.


                                       27
<PAGE>



                                   SIGNATURES

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

Date:  March 29, 2000                   COMMODORE SEPARATION TECHNOLOGIES, INC.


                                        By: /s/ Paul Hanneson
                                        ----------------------------------------
                                        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.

<TABLE>

<S>                                            <C>                                       <C>

/s/ James DeAngelis                            Senior Vice President, Sales and          March 29, 2000
------------------------------------------
James M. DeAngelis                             Marketing (principal financial and
                                               accounting officer)

/s/ Paul Hanneson                              Chairman of the Board and Chief           March 29, 2000
------------------------------------------
Paul E. Hannesson                              Executive Officer (principal executive
                                               officer)

/s/ Bentley Blum                               Director                                  March 29, 2000
------------------------------------------
Bentley J. Blum

</TABLE>

                                       28