UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-KSB

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

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

                                       OR

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

                   For the fiscal year ended December 31, 2003

                         Commission file number 0-22291

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

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

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

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

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

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

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

         Indicate  by check  mark  whether  the  registrant:  (1) has  filed all
reports  required to be filed by Section 13 or 15(d) of the Securities  Exchange
Act of 1934 during the preceding 12 months (or for such shorter  period that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __

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

         Non-affiliates  of the  registrant  held  shares of Common  Stock as of
February 28, 2004 with an aggregate market value of approximately $16,000 (based
upon the average bid and asked  prices of the Common  Stock on February 28, 2004
as quoted by the Nasdaq Small Cap Market).

         As of February 28, 2004,  11,732,640 shares of the registrant's  Common
Stock were outstanding.

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

                       DOCUMENTS INCORPORATED BY REFERENCE

<PAGE>
                                     PART I
                                     ------

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

GENERAL

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

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

         To finance the significant growth expected by the Company,  the Company
raised a net amount equal to  approximately  $11,100,000  from an initial public
offering of its preferred stock, common stock and warrants in April and May 1997
(the "IPO").  As of February 28, 2004  approximately 85% of the Company's common
stock was owned by Commodore Environmental Services, LLC ("LLC"), a wholly owned
subsidiary of Commodore  Environmental  Services,  Inc., a Delaware  corporation
("Environmental").  Effective  as  of  September  28,  1998,  Commodore  Applied
Technologies,  Inc., a Delaware  Corporation  ("Applied"),  transferred  its 87%
interest  in the  Company  to  Environmental  as  part  of a debt  restructuring
agreement  consummated  between the two companies  following  the  completion of
fairness opinions.

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

         In June 2000, the Company closed its Kennesaw,  Georgia facility.  As a
result,  the Company  transferred  approximately  $227,000 of lab  equipment and
furniture   and   fixtures   to   Commodore    Environmental    Services,   Inc.
"Environmental",  the owner of 87% of the issued and outstanding common stock of
the Company, in exchange for $227,000 of intercompany indebtedness.

         The  Company  has had no  operations  since  December  31,  2000 and is
considered a development stage company for financial reporting purposes,  due to
the limited revenues generated since inception.

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


                                       1
<PAGE>

THE SLiM TECHNOLOGY

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

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

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

         Operational Characteristics

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


o        requires lower initial capital costs and lower operating costs;

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

                                       2
<PAGE>

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

         Test Results

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

                                                                                                 Applicable
Material                       Before Treatment              After Treatment                     Federal Guideline
--------                       ----------------              ---------------                     -----------------
Metals:

     <S>                       <C>                           <C>                                 <C>
     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

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



                                       3
<PAGE>

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

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

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

BACKLOG

         At December 31, 2003, the Company had no backlog.

                                       4
<PAGE>

RESEARCH AND DEVELOPMENT

         The Company has had no  expenditures  for research and  development for
the years ended December 31, 2003 and 2002.

INTELLECTUAL PROPERTY

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

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

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

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

COMPETITION

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

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

         Separation  technologies  are  currently  utilized by a wide variety of
domestic and international  companies,  including several large companies having
substantially  greater financial and other resources than the Company.  Although
the  Company  believes  that  SLiM may have  advantages  over many  other  known
separation technologies,  any one or more of the Company's competitors, or other
enterprises not presently known, may develop  technologies which are superior to
SLiM.  To the  extent the  Company's  competitors  are able to offer  comparable
services  at  lower  prices  or  of  higher  quality,   or  more  cost-effective
alternatives,  the Company's ability to compete  effectively could be materially
adversely affected. The Company believes that its ability to compete in both the

                                       5
<PAGE>

commercial  and  governmental  sectors is dependent  upon SLiM being a superior,
more cost-effective method to achieve separation and/or recovery of a variety of
materials in varying amounts and  configurations.  In the event that the Company
is  unable  to  demonstrate  that  SLiM  is  a   technologically   superior  and
cost-effective  alternative  to other  separation  technologies  on a commercial
scale, the Company may not be able to compete successfully.

GOVERNMENT REGULATION

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

ENVIRONMENTAL MATTERS

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

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

EMPLOYEES

         As of February 28, 2004, the Company had no full-time employees.

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

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

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

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

                                       6
<PAGE>

         As of February  28,  2004,  no  litigation  has been filed  against the
Company with  respect to this  indemnification  issue.  The Company is currently
investigating all of the relevant facts and circumstances in connection with the
Surety's  potential claim or cause of action. The Company is unable to determine
the amount, if any, of the potential claim.


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

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of the year ended December 31, 2003.


                                       7
<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 minimum standards for continued listing on the Nasdaq Market
System.  The Company is currently  listed on the OTC Bulletin Board. On February
28, 2004,  there were  approximately  177 holders of record of Common Stock, two
holders  of record of  Convertible  Preferred  Stock and 16 holders of record of
Warrants.

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

                                                                                 Convertible
                                                 Common Stock                  Preferred Stock                      Warrants
                                           ---------- ---- ----------    ---------- --- -------------    ----------- --- -----------
                                             High             Low          High             Low             High            Low
                                           ----------      ----------    ----------     -------------    -----------     -----------
<S>                                            <C>             <C>           <C>               <C>            <C>             <C>
FISCAL YEAR 2003
   January 1 to March 31, 2003.......          $0.01           $0.01         $0.00             $0.00          $0.00           $0.00
   April 1 to June 30, 2003..........           0.01            0.01          0.00              0.00           0.00            0.00
   July 1 to September 30, 2003......           0.01            0.01          0.00              0.00           0.00            0.00
   October 1 to December 31, 2003....           0.01            0.01          0.00              0.00           0.00            0.00

FISCAL YEAR 2002
   January 1 to March 31, 2002.......          $0.01           $0.01         $0.00             $0.00          $0.00           $0.00
   April 1 to June 30, 2002..........           0.01            0.01          0.00              0.00           0.00            0.00
   July 1 to September 30, 2002......           0.01            0.01          0.00              0.00           0.00            0.00
   October 1 to December 31, 2002....           0.01            0.01          0.00              0.00           0.00            0.00
</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.

                                       8
<PAGE>

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


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

GENERAL

         The  Company was  organized  in November  1995,  and has not  generated
material revenues or any profits through December 31, 2003. 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.
During  the years  2002 and 2003,  the  Company  has not  actively  pursued  any
operational  activities  primarily  due to lack of  financial  resources  and no
employees.

         The Company has generated  nominal revenues to date.  During the period
from  November 15, 1995 (date of  inception)  to December 31, 2003,  the Company
incurred a net loss of  $13,478,000.  For the year ended  December 31, 2003, the
Company  incurred a loss of $30,000,  had no operations and anticipates  that it
may continue to incur significant losses for the foreseeable  future.  There can
be no  assurance  as to  whether  or when the  Company  will  generate  material
revenues or achieve  profitable  operations.  See  "Business"  and the Financial
Statements and Notes thereto included elsewhere in this Annual Report.

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

         In June 2000, the Company closed its Kennesaw,  Georgia facility.  As a
result,  the Company  transferred  approximately  $227,000 of lab  equipment and
furniture   and   fixtures   to   Commodore    Environmental    Services,   Inc.
"Environmental",  the owner of 85% of the issued and outstanding common stock of
the Company, in exchange for $227,000 of intercompany indebtedness.

         The  Company  plans to  continue  to search  for  applications  for its
technology.

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

PLAN OF OPERATIONS

         The  following  discussion  and  analysis  provides  information  which
management  believes is  relevant  to an  assessment  and  understanding  of the
Company's results of operations and financial  condition.  The discussion should
be read in conjunction with the financial statements and notes thereto.

         The Company  has no business  operations,  and very  limited  assets or
capital resources.  The Company's business plan is to seek one or more potential
business ventures that, in the opinion of management, may warrant involvement by
the  Company.  The Company  recognizes  that  because of its limited  financial,
managerial and other resources, the type of suitable potential business ventures
which may be available to it will be extremely limited.  The Company's principal
business  objective will be to seek long-term  growth  potential in the business
venture  in which it  participates  rather  than to seek  immediate,  short-term
earnings.  In seeking to attain the Company's  business  objective,  it will not
restrict its search to any particular business or industry,  but may participate
in business  ventures of essentially  any kind or nature.  It is emphasized that
the business objectives  discussed are extremely general and are not intended to
be restrictive upon the discretion of management.

         The  Company  will not  restrict  its search for any  specific  kind of
firms, but may participate in a venture in its preliminary or development stage,
may  participate  in a business that is already in operation or in a business in
various stages of its corporate  existence.  It is impossible to predict at this
stage the status of any venture in which the Company  may  participate,  in that
the venture may need  additional  capital,  may merely desire to have its shares
publicly  traded,  or may seek other perceived  advantages which the Company may
offer. In some instances,  the business endeavors may involve the acquisition of
or merger with a corporation which does not need substantial additional cash but
which desires to establish a public trading market for its common stock.

         The Company depends on its funding from the majority  shareholder.  The
current  President,  Chairman and Chief  Executive  Officer have expressed their
intent that to the extent  necessary  the Company will seek to raise  additional
funds  through the sale of equity  securities  or by  borrowing to funds until a
suitable  business  venture can be  completed.  Management  does not  anticipate
raising  funds during the next twelve  months.  There is no  assurance  that the
Company  will be able to  successfully  identify  and/or  negotiate  a  suitable
potential business venture or raise additional funds if and when needed.


                                       9
<PAGE>
         The Company has  experienced  net losses during the  development  stage
(1997 to present) and has had no significant revenues during such period. During
the past two fiscal years the Company has had no business  operations.  In light
of these  circumstances,  the  ability  of the  Company to  continue  as a going
concern is  significantly  in doubt.  The attached  financial  statements do not
include any adjustments that might result from the outcome of this uncertainty.

Off-Balance Sheet Arrangements

         We do not have any  off-balance  sheet  arrangements  that  have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial  condition,  revenues or expenses,  results of  operations,
liquidity,  capital  expenditures  or  capital  resources  that is  material  to
investors.

LIQUIDITY AND CAPITAL RESOURCES

         The Company has  sustained  losses of $30,000 and $29,000 for the years
ended December 31, 2003 and 2002,  respectively.  The Company had no significant
revenues  during the period  from  November  15,  1995  (date of  inception)  to
December 31, 2003 and is considered a development  stage company.  Substantially
all of the Company's losses are attributable to the expenses  detailed above. At
December 31, 2003 the Company had a working  capital deficit of $4,895,000 and a
stockholders'  deficit of $4,895,000.  The Company's decrease in working capital
is principally  due to the net loss for the period and dividends  accrued on the
Company's Convertible Preferred Stock.

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

         The Company has a working  capital  deficit,  a deficit in equity,  has
incurred  substantial  losses from  operations  and has not generated  cash from
operating  activities.  Presently,  the Company  does not have  sufficient  cash
resources to meet its  requirements in 2004 or the necessary  working capital to
develop profitable operations from using its patented technology.  The financial
statements  do not include any  adjustments  that might be necessary  should the
Company be unable to continue as a going concern.

NEW ACCOUNTING PRONOUNCEMENTS

         In November  2002,  the EITF  reached a consensus  on Issue No.  00-21,
Revenue Arrangements with Multiple  Deliverables.  EITF Issue No. 00-21 provides
guidance on how to account for certain arrangements that involve the delivery or
performance  of multiple  products,  services  and/or rights to use assets.  The
provisions  of EITF Issue No. 00-21 will apply to revenue  arrangements  entered
into in fiscal periods beginning after June 15, 2003. The adoption of EITF Issue
No.  00-21 did not have a material  impact on  operating  results  or  financial
condition of the Company as the Company  followed the provisions of Statement of
Position ("SOP") 97-2,  Software revenue  Recognition,  as modified by SOP 98-9,
Modification  of SOP 97-2 with Respect to Certain  Transactions,  which  provide
guidance for revenue recognition of arrangements with multiple deliverables.

         In April 2003, FASB issued SFAS No. 149,  Amendment of Statement 133 on
Derivative  Instruments  and Hedging  Activities.  SFAS 149 amends and clarifies
accounting for derivative instruments,  including certain derivative instruments
embedded  in  other  contracts  and  for  hedging  activities  under  SFAS  133,
Accounting  for  Derivatives  and  Hedging  Activities.  SFAS  149 is  generally
effective for derivative instruments,  including derivative instruments embedded
in certain contracts, entered into or modified after June 30, 2003. The adoption
of SFAS 149 did not have a material impact on the operating results or financial
condition of the Company.

         In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments  with  Characteristics  of Both  Liabilities  and  Equity.  SFAS 150
clarifies the accounting for certain financial  instruments with characteristics
of both liabilities and equity and requires that those instruments be classified
as liabilities in statements of financial  position.  Previously,  many of those
financial  instruments  were  classified  as equity.  SFAS 150 is effective  for
financial  instruments entered into or modified after May 31, 2003 and otherwise
is effective at the beginning of the first interim period  beginning  after June
15,  2003.  On November 7, 2003,  FASB Staff  Position  150-3 was issued,  which
indefinitely  deferred  the  effective  date of SFAS 150 for  certain  mandatory
redeemable  non-controlling interests. As the Company does not have any of these
financial  instruments,  the adoption of SFAS 150 did not have any impact on the
Company's consolidated financial statements.

         In December  2003,  the FASB issued  Interpretation  No. 46 ("FIN 46R")
(revised  December  2003),  Consolidation  of  Variable  Interest  Entities,  an
Interpretation  of  Accounting  Research  Bulletin  No.  51  ("ARB  51"),  which
addresses how a business enterprise should evaluate whether it has a controlling
interest in an entity  though  means other than  voting  rights and  accordingly
should consolidate the entity. FIN 46R replaces FASB  Interpretation No. 46 (FIN
46), which was issued in January 2003.  Before concluding that it is appropriate
to apply ARB 51 voting interest  consolidation model to an entity, an enterprise
must first determine that the entity is not a variable interest entity (VIE). As
of the effective  date of FIN 46R, an enterprise  must evaluate its  involvement
with all  entities or legal  structures  created  before  February  1, 2003,  to
determine whether consolidation requirements of FIN 46R apply to those entities.
There is no  grandfathering  of existing  entities.  Public companies must apply
either FIN 46 or FIN 46R immediately to entities  created after January 31, 2003
and no later than the end of the first  reporting  period  that ends after March
15,  2004.  The adoption of FIN 46 had no effect on the  Company's  consolidated
financial position, results of operations or cash flows.



                                       10
<PAGE>

         In December 2003, the Securities and Exchange  Commission  (SEC) issued
Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition. SAB 104 revises or
rescinds  portions  of the  interpretive  guidance  included  in Topic 13 of the
codification of staff  accounting  bulletins in order to make this  interpretive
guidance consistent with current authoritative  accounting and auditing guidance
and SEC rules and  regulations.  The adoption of SAB 104 did not have a material
effect on the Company's results of operations or financial condition.

NET OPERATING LOSSES

         At  December  31,  2003,  the  Company  had tax loss  carryforwards  of
approximately  $12,300,000.  The amount of and ultimate  realization  of benefit
from the net operating loss for income tax purposes is dependent,  in part, upon
the tax laws in effect, future earnings of the Company, and other future events,
the effects of which cannot be determined.  A change in ownership of the Company
may reduce the amount of loss allowable. These net operating carryforwards begin
to expire in 2011. A full valuation  allowance has been  established  because of
the  uncertainty  about  whether  the  Company  will  realize the benefit of net
operating losses.

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

         The  financial  statements  of the  Company  are  included on pages F-1
through F-25 of this Annual Report and are incorporated herein by reference.

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

         None

ITEM 8A. CONTROLS AND PROCEDURES
-------- -----------------------

                                       11
<PAGE>

         Our Chief Executive  Officer and Chief Financial  Officer  conducted an
evaluation of the effectiveness of our disclosure controls and procedures. Based
on this  evaluation,  the Chief Executive  Officer and Chief  Financial  Officer
concluded  that our  disclosure  controls and  procedures  were  effective as of
December 31, 2003 in alerting  them in a timely  manner to material  information
required  to be  included  in our SEC  reports.  In  addition,  no change in our
internal control over financial  reporting occurred during the fourth quarter of
the fiscal year ended  December  31, 2003 that has  materially  affected,  or is
reasonably  likely to materially  effect,  our internal  control over  financial
reporting.



                                       12
<PAGE>
                                    PART III

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

EXECUTIVE OFFICERS AND DIRECTORS

         The names  and ages of the  executive  officers  and  directors  of the
Company,  and their  positions  with the Company as of February 28, 2004, are as
follows:

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

Paul E. Hannesson.....   64    Chairman of the Board and Chief Executive Officer

Andrew P. Oddi........   42    President

James M. DeAngelis....   43    Senior Vice President - Sales & Marketing

Bentley J. Blum.......   62    Director

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

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

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

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

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

                                       13
<PAGE>

         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.

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, 2003,  and upon a
review of Forms 5 and amendments  thereto  furnished to the Company with respect
to the year ended December 31, 2003, 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, 2003.

AUDIT COMMITTEE AND FINANCIAL EXPERT

         We do not have an Audit  Committee.  Bentley J. Blum and Paul Hannesson
the  Company's  directors  perform  some  of  the  same  functions  of an  Audit
Committee,  such  as;  recommending  a  firm  of  independent  certified  public
accountants   to  audit  the  financial   statements;   reviewing  the  auditors
independence,  the financial  statements  and their audit report;  and reviewing
management's  administration of the system of internal accounting controls.  The
Company does not  currently  have a written audit  committee  charter or similar
document.

         We have no financial expert. We believe the cost related to retaining a
financial expert at this time is prohibitive.  Further,  because of our start-up
operations, we believe the services of a financial expert are not warranted.

CODE OF ETHICS

         A code of ethics  relates  to  written  standards  that are  reasonably
designed to deter wrongdoing and to promote:

1)       Honest and ethical conduct, including the ethical handling of actual or
         apparent  conflicts  of  interest  between  personal  and  professional
         relationships.

2)       Full, fair, accurate,  timely and understandable  disclosure in reports
         and documents  that are filed with, or submitted to the  Securities and
         Exchange  Commission  and in other  public  communications  made by the
         Company.

3)       Compliance with applicable government laws, rules and regulations.

4)       The  prompt  internal  reporting  of  violations  of  the  code  to  an
         appropriate person or persons identified in the code; and

5)       Accountability for adherence to the code.

         We have not adopted a corporate code of ethics.  Our board of directors
is considering over the next year, establishing such a code of ethics.

                                       14
<PAGE>

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

SUMMARY COMPENSATION

         The following table sets forth the amount of all  compensation  paid by
the Company and/or its affiliates and allocated to the Company's  operations for
services  rendered  during the fiscal years ended  December  31, 2003,  2002 and
2001, 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-
                                         Salary        Bonus        Sation       Award(s)       Options       Payouts     sation
Name and Principal Position    Year       ($)          ($)           ($)           ($)           (#)           ($)         ($)
----------------------------   ----      ------        -----        -------     ----------      -------       -------    ---------
<S>                           <C>          <C>          <C>          <C>            <C>          <C>           <C>          <C>
Paul E. Hannesson             2003         -0-          -0-          -0-            -0-          -0-           -0-          -0-
Chief Executive Officer       2002         -0-          -0-          -0-            -0-          -0-           -0-          -0-
                              2001         -0-          -0-          -0-            -0-          -0-           -0-          -0-

James M. DeAngelis            2003         -0-          -0-          -0-            -0-          -0-           -0-          -0-
Senior Vice President         2002         -0-          -0-          -0-            -0-          -0-           -0-          -0-
                              2001         -0-          -0-          -0-            -0-          -0-           -0-          -0-

Andrew Oddi                   2003         -0-          -0-          -0-            -0-          -0-           -0-          -0-
President                     2002         -0-          -0-          -0-            -0-          -0-           -0-          -0-
                              2001         -0-          -0-          -0-            -0-          -0-           -0-          -0-
--------------------
</TABLE>


STOCK OPTIONS

         No stock options were granted in 2003, 2002 or 2001. The Company has no
outstanding stock appreciation  rights and granted no stock appreciation  rights
during the year ended December 31, 2003.


                                       15
<PAGE>

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

         The following table sets forth certain  information with respect to the
beneficial  ownership of the  Company's  common stock as of February 28, 2004 by
(i) each person known to the Company to be the beneficial  owner of more than 5%
of the outstanding  shares of the Company's common stock,  (ii) each director of
the Company, (iii) each executive officer of the Company, and (iv) all executive
officers and  directors of the Company as a group,  as reported by such persons.
Unless  otherwise  indicated,  the owners have sole voting and investment  power
with respect to their respective shares.
<TABLE>
<CAPTION>

                                                  Number of Shares of Common      Percentage of Outstanding
Name and Address                                      Stock Beneficially               Common Stock
of Beneficial Owner(1)                                    Owned(2)                  Beneficially Owned
----------------------                            --------------------------      -------------------------

<S>                                                      <C>                                 <C>
Commodore Environmental Services, Inc.......             12,380,000(3)                       87.4%

Bentley J. Blum.............................              4,667,399(4)                       33.0%

Paul E. Hannesson...........................              1,158,647(5)                        8.0%

James M. DeAngelis..........................                290,016(6)                        2.0%

Andrew P. Oddi..............................                137,076(7)                        1.0%

All executive officers and directors
as a group (4 persons)......................              6,253,138                          44.0%
------------------------
* Percentage ownership is less than 1%.
</TABLE>

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

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

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

(4)      Consists of: (a) 50,000 shares of the Company's Common Stock underlying
         currently  exercisable options granted to Mr. Blum by the Company under
         the Plan;  and (b) Mr.  Blum's  indirect  beneficial  ownership  of the
         Company's  common stock based upon Mr. Blum's  beneficial  ownership of
         (i) 28,479,737 shares and his spouse's ownership of 2,000,000 shares of
         common  stock  of  Environmental,  representing  together  37.3% of the
         outstanding  shares of  Environmental  common  stock.  Does not include
         450,400 shares of Environmental  common stock owned by Simone Blum, the
         mother of Mr. Blum,  and 385,000 shares of  Environmental  common stock
         owned by Samuel Blum,  the father of Mr. Blum.  Mr. Blum  disclaims any
         beneficial  interest in the shares of Environmental  common stock owned
         by his spouse, mother and father.

(5)      Consists of: (a) 280,000  shares of Common Stock  underlying  currently
         exercisable stock options granted to Mr. Hannesson by the Company under
         the Plan  and (b) Mr.  Hannesson's  indirect  beneficial  ownership  of
         Common Stock based upon his beneficial ownership of an aggregate of (i)
         2,650,000  shares  of  Environmental  common  stock  owned  by  Suzanne
         Hannesson,  the  spouse  of Mr.  Hannesson,  (ii)  2,650,000  shares of
         Environmental common stock owned by the Hannesson Family Trust (Suzanne
         Hannesson  and John D.  Hannesson,  trustees)  for the  benefit  of Mr.
         Hannesson's spouse,  (iii) 500,000 shares of Environmental common stock
         issued to the  Hannesson  Family Trust in exchange for the surrender of
         options to  purchase  950,000  shares of  Environmental  common  stock,
         representing  in the  aggregate  7.1%  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.

                                       16
<PAGE>

(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.

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

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

ORGANIZATION AND CAPITALIZATION OF THE COMPANY

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

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

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

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

                                       17
<PAGE>

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.


                                       18
<PAGE>

                                     PART IV
                                     -------


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

The following documents are filed as part of this Annual Report:

Financial Statements.                                                  Page No.
--------------------                                                   -------

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

  Balance Sheets as of December 31, 2003...........................      F-2

  Statements of Operations for the years ended
       December 31, 2003 and 2002, and cumulative
       amounts since inception.....................................      F-3

  Statements of Stockholders' (Deficit)
       for the period from November 15, 1995
       (date of inception) to December 31, 2003....................      F-4

  Statements of Cash Flows for the years ended
       December 31, 2003 and 2002, and cumulative
       amounts since inception.....................................      F-8

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

         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.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
-------  --------------------------------------

         For the fiscal year ended December 31, 2003, we have been billed $3,000
for professional services rendered for the audit of our financial statements. We
have also been billed $3,630 for the review of financial  statements included in
our periodic and other reports filed with the Securities and Exchange Commission
for the year then ended

         The  Company  was also  billed  $755 in other  fees for the year  ended
December 31, 2003.


                                       19
<PAGE>

Exhibits.

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

1.1           Form of  Underwriting  Agreement  between the Company and National
              Securities   Corporation,   as   Representative   of  the  several
              Underwriters listed therein (the "Representative").(4)

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.(4)

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.(4)

4.5           Specimen Convertible Preferred Stock Certificate.(3)

4.6           Form of Certificate of Designation,  Preferences and Rights of 10%
              Senior Convertible Redeemable Preferred Stock of the Company.(5)

4.7           Certificate  of  Designation,  Preferences  and Rights of Series B
              Convertible Redeemable Preferred Stock of the Company. (8)

10.1          Equipment  Lease,  dated as of  November  25,  1997,  between  the
              Company and Maryland Environmental Service.(6)

10.2          License  Agreement,  dated as of November  25,  1997,  between the
              Company and Maryland Environmental Service.(6)

10.3          Equipment Lease, dated as of February 5, 1998, between the Company
              and Maryland Environmental Service.(6)

10.4          License  Agreement,  dated as of  February  5,  1998  between  the
              Company and Maryland Environmental Service.(6)

10.5          Debt repayment  agreement,  dated as of September 28, 1998 between
              Environmental and Applied.(7)

22.1          Subsidiaries of the Company.(1)

31.1*         Commodore  Separation  Technologies,  Inc.  Certification of Chief
              Executive  Officer  Pursuant to Rule  13a-14(a) of the  Securities
              Exchange Act of 1934, as amended,  as adopted  pursuant to Section
              302 of the Sarbanes-Oxley Act of 2002.

31.2*         Commodore  Separation  Technologies,  Inc.  Certification of Chief
              Financial  Officer  Pursuant to Rule  13a-14(a) of the  Securities
              Exchange Act of 1934, as amended,  as adopted  pursuant to Section
              302 of the Sarbanes-Oxley Act of 2002.

                                       20
<PAGE>

32.1*         Commodore  Separation  Technologies,  Inc.  Certification of Chief
              Executive  Officer Pursuant to 18 U.S.C.  Section 1350, as adopted
              pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*         Commodore  Separation  Technologies,  Inc.  Certification of Chief
              Financial  Officer Pursuant to 18 U.S.C.  Section 1350, as adopted
              pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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

* 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.  5 to the  Registration  Statement  filed  with the
              Securities and Exchange Commission on March 13, 1997.

(5)           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.

(6)           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.

(7)           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.

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

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

         None.


                                       21
<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, 2004              COMMODORE SEPARATION TECHNOLOGIES, INC.


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

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


/s/ Andrew P. Oddi            President, (principal financial     March 29, 2004
-------------------------     and accounting officer)
Andrew P. Oddi

/s/  Paul E. Hannesson        Chairman of the Board and Chief     March 29, 2004
-------------------------     Executive Officer (principal
Paul E. Hannesson             executive officer)


/s/  Bentley J. Blum          Director                            March 29, 2004
-------------------------
Bentley J. Blum





                                       22
<PAGE>


COMMODORE SEPARATION TECHNOLOGIES, INC.
(A Development Stage Company)
Financial Statements
December 31, 2003

<PAGE>
                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A Development Stage Company)

                                                                           Index

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


                                                                            Page
                                                                            ----

Independent Auditors' Report                                                F-1

Balance Sheet as of December 31, 2003                                       F-2

Statement of Operations for the years ended
  December 31, 2003, and 2002, and
  cumulative amounts since inception                                        F-3

Statement of Stockholders' Deficit
  Period November 15, 1995 (date of inception)
  through December 31, 2003                                                 F-4

Statement of Cash Flows for the years ended
  December 31, 2003, and 2002, and
  cumulative amounts since inception                                        F-8

Notes to Financial Statements                                               F-10

<PAGE>
                                                    INDEPENDENT AUDITORS' REPORT


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

We have audited the balance sheet of Commodore Separation Technologies,  Inc. (a
development stage company) as of December 31, 2003 and the related statements of
operations,  stockholders'  deficit and cash flows for the years ended  December
31, 2003, and 2002, and the period from November 15, 1995 (date of inception) to
December 31, 2003.  These  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,   the  financial   position  of  Commodore   Separation
Technologies,  Inc. (a  development  stage company) as of December 31, 2003, and
the results of its  operations  and its cash flows for the years ended  December
31, 2003, and 2002, and the period from November 15, 1995 (date of inception) to
December 31, 2003 in conformity with accounting principles generally accepted in
the United States of America.

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


/s/ Tanner + Co.
Salt Lake City, Utah
February 7, 2004

                                                                             F-1
<PAGE>

                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A Development Stage Company)
                                                                   Balance Sheet

                                                               December 31, 2003
                                (In thousands, except shares and per share data)
--------------------------------------------------------------------------------


         Assets
         ------

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

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

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

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

Current liabilities:
     Accounts payable                                              $        280
     Accrued expenses                                                       134
     Advance deposits                                                        53
     Due to related parties                                               1,280
     Accrued dividends                                                    3,149
                                                                   -------------

          Total current liabilities                                       4,896

Commitments and contingencies

Stockholders' deficit:
     Preferred stock, Series A, $.001 par value, 10%
       cumulative, 5,000,000 shares authorized, 518,600
       shares issued and outstanding                                          1
     Preferred stock, Series B, $.001 par value, 6%
       cumulative, 4,000 shares authorized, 3,570 shares
       issued and outstanding                                                 -
     Common stock, $.001 par value, 50,000,000 shares
       authorized, 11,732,640 shares issued and outstanding                  12
     Additional paid-in capital                                           8,570
     Deficit accumulated during development stage                  $    (13,478)
                                                                   -------------

          Total stockholders' deficit                                    (4,895)
                                                                   -------------

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

--------------------------------------------------------------------------------
See accompanying notes to financial statements.                              F-2
<PAGE>
<TABLE>
<CAPTION>

                                                                    COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                              (A Development Stage Company)
                                                                                    Statement of Operations

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

                                                                                             Cumulative
                                                                                            Amounts from
                                                                                            November 15,
                                                                                            1995 (Date of
                                                               Years Ended December 31,     Inception) to
                                                            ------------------------------- December 31,
                                                                 2003           2002            2003
                                                            -----------------------------------------------

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

 Costs and expenses:
      Cost of sales                                                      -               -             648
      Research and development                                           -               -           3,603
      General and administrative                                        30              29           4,541
      Impairment of inventory                                            -               -             519
      Impairment of property and equipment                               -               -             513
      Impairment of intangible assets                                    -               -             175
      Depreciation and amortization                                      -               -           1,402
      Corporate overhead expenses                                        -               -           2,145
      Sales and marketing                                                -               -             728
      Licensing fee                                                      -               -              50
                                                            -----------------------------------------------

          Total costs and expenses                                      30              29          14,324
                                                            -----------------------------------------------

          Loss from operations                                         (30)            (29)        (13,921)

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

          Loss before  income taxes                                    (30)            (29)        (13,478)

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

 Net loss                                                   $          (30)  $         (29)  $     (13,478)
                                                            -----------------------------------------------

 Dividends on Series A and B Preferred Stock                          (540)           (540)
                                                            -------------------------------

 Net loss applicable to common shareholders                 $         (570)  $        (569)
                                                            -------------------------------

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

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

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

                                                                                             COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                                                       (A Development Stage Company)
                                                                                                  Statement of Stockholders' Deficit

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


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

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

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

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

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

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

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

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

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

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

Net loss for the
year ended June 30,
1997                        -       -        -        -            -      -              -           -       (3,171)        (3,171)
                      --------------------------------------------------------------------------------------------------------------
Balance, June 30,
1997                  600,000       1        -        -   11,500,000     11              -      11,928       (3,232)         8,708


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

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                                                             COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                                                       (A Development Stage Company)
                                                                                                  Statement of Stockholders' Deficit
                                                                                                                           Continued

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


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

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

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

Balance, December
31, 1997              600,000       1        -        -   11,503,650     11              -      11,638       (5,998)         5,652

Issuance of common
stock                       -       -        -        -       11,925      -              -          25            -             25

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

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

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

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

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

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

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

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

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


------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.                                                                                  F-5

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                                                             COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                                                       (A Development Stage Company)
                                                                                                  Statement of Stockholders' Deficit
                                                                                                                           Continued

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


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

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

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

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

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

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

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

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

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

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


------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.                                                                                  F-6

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                                                             COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                                                       (A Development Stage Company)
                                                                                                  Statement of Stockholders' Deficit
                                                                                                                           Continued

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


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

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

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

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

Dividends on
preferred stock
 - Series A                 -       -        -        -            -      -              -        (519)           -           (519)

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

Net loss for the
year ended December
31, 2003                    -       -        -        -            -      -              -           -          (30)           (30)
                      --------------------------------------------------------------------------------------------------------------

Balance, December
31, 2003              518,600  $    1    3,570  $     -   11,732,640  $  12    $         -   $   8,570   $  (13,478)   $    (4,895)
                      --------------------------------------------------------------------------------------------------------------

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

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                                     COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                               (A Development Stage Company)
                                                                                     Statement of Cash Flows

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

                                                                                                Cumulative
                                                                                               Amounts from
                                                                                               November 15,
                                                                                               1995 (Date of
                                                                  Years Ended December 31,     Inception) to
                                                               ----------------------------    December 31,
                                                                   2003           2002             2003
                                                               ---------------------------------------------

<S>                                                            <C>              <C>             <C>
Cash flows from operating activities:
     Net loss                                                  $        (30)  $      (29)  $       (13,478)
     Adjustments to reconcile net loss to cash
       used in operating activities:
         Inventory impairment                                             -            -               519
         Impairment of intangibles                                        -            -               175
         Property and equipment impairment                                -            -               513
         Depreciation and amortization                                    -            -             1,402
         Issuance of Common Stock for services                            -            -                35
         Gain on troubled debt restructuring                              -            -               214
         (Increase) decrease in:
              Accounts receivable                                         -            -                 -
              Inventory, net                                              -            -              (519)
         Increase (decrease) in:
              Accounts payable                                            -          (16)              280
              Accrued expenses                                            -            -               134
              Deposits                                                    -            -                53
                                                               -------------------------------------------

                  Net cash used in
                  operating activities                                 (30)         (45)           (10,672)
                                                               -------------------------------------------

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

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



----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.                                                        F-8

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                                     COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                                               (A Development Stage Company)
                                                                                     Statement of Cash Flows
                                                                                                   Continued

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

                                                                                                Cumulative
                                                                                               Amounts from
                                                                                               November 15,
                                                                                               1995 (Date of
                                                                  Years Ended December 31,     Inception) to
                                                               ----------------------------    December 31,
                                                                   2003           2002             2003
                                                               ---------------------------------------------

<S>                                                            <C>            <C>          <C>
Cash flows from financing activities:
     Proceeds from sale of common stock and
        warrants                                                          -            -             6,109
     Proceeds from sale of preferred stock and
        warrants                                                          -            -             4,978
     Preferred stock dividend                                             -            -              (738)
     Borrowings from stockholder                                         30           35             2,626
     Collection of subscription receivable                                -            -                15
                                                               ---------------------------------------------

                  Net cash provided by
                  financing activities                                   30           35            12,990
                                                               ---------------------------------------------

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

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

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

Supplemental disclosure of cash flow information

   Cash paid during the period for:

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

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


Non cash investing and financing activities:

         The Company  accrued  dividends  on  preferred  stock of $540 and $540,
which were not  declared,  or paid,  for the years ending  December 31, 2003 and
2002, respectively.


--------------------------------------------------------------------------------
See accompanying notes to financial statements.                              F-9

<PAGE>

                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements

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

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

                        The Company is a process  technology  company  which has
                        developed and intends to  commercialize  its  separation
                        technology and recovery system,  known as SLiM(TM).  The
                        Company  believes  SLiM(TM)  is capable  of  effectively
                        separating and extracting various solubilized materials,
                        including  metals,   organic  chemicals,   biochemicals,
                        radionuclides and other targeted substances, from liquid
                        and possibly  gaseous process  streams.  The Company has
                        not  received   significant  revenue  from  the  planned
                        principal  operations.  During the years ended  December
                        31, 2003 and 2002,  the Company's  activities  consisted
                        solely of maintaining its SEC reporting  obligations and
                        exploring   potential  funding  sources.  As  such,  the
                        Company is  considered a  development  stage  company as
                        defined in Statement of Financial  Accounting  Standards
                        ("SFAS") No. 7.

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

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

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

<PAGE>

                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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


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

                        Advance Deposits
                        The  Company  collected  a  $263  deposit  related  to a
                        contract  with the Port of  Baltimore.  The contract was
                        subsequently   terminated.   During  2001,  the  Company
                        reimbursed  $210 to the  Port of  Baltimore,  leaving  a
                        balance of $53 as of December 31, 2003.

                        Contract Revenues
                        In November  1997,  the Company  entered into a contract
                        with  the  State  of  Maryland  for  the   treatment  of
                        chromium-contaminated  leachate  at  the  Hawkins  Point
                        Hazardous  Waste  Treatment  Facility  at  the  Port  of
                        Baltimore.  During 1999,  the Company  commenced work on
                        this  contract and  accordingly,  has  recorded  revenue
                        related to the contract.  Costs  incurred in preparation
                        for the  commencement  of the  contract  are recorded as
                        expenses as  incurred.  As of  December  31,  2000,  the
                        contract was  terminated.  The Company has not generated
                        revenue since the year 2000.

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

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

<PAGE>

                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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


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

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

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

                        Stock-Based Compensation
                        At December  31, 2003,  the Company has one  stock-based
                        employee  compensation  plan,  which is  described  more
                        fully in Note 8. The  Company  accounts  for those plans
                        under the recognition and measurement  principles of APB
                        Opinion  No.  25,   Accounting   for  Stock   Issued  to
                        Employees, and related  Interpretations.  No stock-based
                        employee  compensation cost is reflected in net loss, as
                        all  options  granted  under those plans had an exercise
                        price that  equaled or exceeded  the market value of the
                        underlying  common  stock  on the  date  of  grant.  The
                        following  table  illustrates the effect on net loss and
                        earnings  per share if the  company had applied the fair
                        value  recognition  provision of FASB Statement No. 123,
                        Accounting for Stock-Based Compensation,  to stock-based
                        employee compensation.


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

<PAGE>

                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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


1.   Organization
     and
     Significant
     Accounting
     Policies
     Continued                                                 Cumulative
                                                              Amount since
                                  Years Ended December 31,     Inception
                                       2003          2002
                                 -------------------------------------------

 Net loss, as reported           $         (30) $       (29) $     (13,478)
 Deduct:
    Total stock- based employee
    compensation expense
    determined under fair value
    based method for all awards,
    net of related tax effects               -            -         (5,490)
                                 -------------------------------------------

 Pro forma net loss              $         (30) $       (29) $     (18,968)
                                 -------------------------------------------

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

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

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

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

<PAGE>

                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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



2.   Going              The accompanying financial statements have been prepared
     Concern            under the assumption that the Company will continue as a
                        going  concern.   Such   assumption   contemplates   the
                        realization   of   assets   and  the   satisfaction   of
                        liabilities  in the normal course of business.  As shown
                        in the financial  statements,  the Company has a working
                        capital  deficit,  a deficit  in  equity,  has  incurred
                        substantial losses from operations and has not generated
                        cash from operating activities. The Company has not ever
                        had significant  revenue from operations and has not had
                        any  operating  activities  during  the past two  fiscal
                        years.  Presently,  the Company does not have sufficient
                        cash resources to meet its  requirements  in 2004 or the
                        necessary   working   capital  to   develop   profitable
                        operations  from  using  its  patented  technology.  The
                        financial statements do not include any adjustments that
                        might be  necessary  should  the  Company  be  unable to
                        continue as a going concern.

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



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

<PAGE>

                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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



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

                                                 Years Ended December 31,
                                                ----------------------------
                                                     2003          2002
                                                ----------------------------

 Net loss                                       $          (30) $       (29)
 Dividends on Series A Preferred  Stock
   (not declared)                                         (519)        (519)
 Dividends on  Series B Preferred Stock
   (not declared)                                          (21)         (21)
                                                ----------------------------

 Net loss applicable to common shareholders     $         (570) $      (569)
                                                ----------------------------
 Weighted average common shares
   outstanding (basic)                              11,733,000   11,733,000
 Convertible preferred stock                          (*)           (*)
 Warrants issued in initial public offering           (*)           (*)
 Employee stock options                               (*)           (*)
                                                ----------------------------

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

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

                        (*) Due to the Company's loss from continuing operations
                        823,750   shares  of  common  stock  issuable  upon  the
                        exercise of  outstanding  stock  options,  and 3,765,711
                        shares of common stock  issuable upon the  conversion of
                        Series  A  and  B   Convertible   Preferred   Stock  are
                        anti-dilutive  and  accordingly  not  considered  in the
                        calculation.

4.   Related Party      The Company has a payable of $179 to  Commodore  Applied
     Transactions       Technologies,  Inc.  (Applied) as of December 31,  2003.
                        The   Company   also   has  a   payable   to   Commodore
                        Environmental Services, Inc. (Environmental) for $1,101,
                        for   uncollateralized    advances   to   the   Company.
                        Environmental  has  direct  ownership  interests  in the
                        Company. Applied is a former majority stockholder in the
                        Company.


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

<PAGE>

                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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


5.   Income Taxes       The  Company  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 2003 and
                        2002  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  differs  from federal
                        income tax rates is as follows:

                                                              Cumulative
                                                                Amounts
                                  Years Ended December 31,       Since
                                      2003          2002       Inception
                                 ------------------------------------------

 Expected tax benefit at
   federal statutory rate        $    (10)    $    (10)  $     (4,192)
 State income tax benefits,
   net of federal income
   tax benefit                         (2)          (2)          (740)
 Change in valuation allowance         12           12          4,932
                                 ------------------------------------------

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

                        The  components  of  net  deferred  income  taxes  as of
                        December 31, 2003 are as follows:

 Net operating loss carryforward                          $          4,932
 Less: valuation allowance                                          (4,932)
                                                          -----------------

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

                        The  Company  conducts  a  periodic  examination  of its
                        valuation   allowance.   Factors   considered   in   the
                        evaluation  include recent and expected  future earnings
                        and the Company's  liquidity and equity  positions.  For
                        the years ended  December 31, 2003 and 2002, the Company
                        has  established  a valuation  allowance  for the entire
                        amount of net deferred tax assets.


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

<PAGE>

                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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


5.   Income Taxes       At  December  31,   2003,   the  Company  had  tax  loss
     Continued          carryforwards  of approximately  $12,300.  The amount of
                        and  ultimate   realization  of  benefit  from  the  net
                        operating loss for income tax purposes is dependent,  in
                        part,  upon the tax laws in effect,  future  earnings of
                        the  Company,  and other future  events,  the effects of
                        which cannot be determined. The change in control of the
                        Company  that took place in  September  1998 could limit
                        the  Company's  ability  to  utilize  all prior tax loss
                        carryforwards.  These net operating  loss  carryforwards
                        begin to expire in 2011.

6.   Royalty            The Company has an  agreement  with a former  officer of
     Agreements         the Company  pursuant to which the former  officer is to
                        receive a royalty of 2% of collected  revenues  from the
                        Company's  membrane   separation   technology   directly
                        attributable to his patentable property through December
                        3,  2002,   except  for  applications   related  to  the
                        radionuclides  technetium  and  rhenium,  for  which the
                        former  officer is entitled to receive a royalty of .66%
                        of net sales  directly  attributable  to his  patentable
                        property  (less   allowances  for  returns,   discounts,
                        commissions,  freight  and  excise or other  taxes).  No
                        royalties have been earned or accrued as of December 31,
                        2003.

                        The Company also has a license  agreement  with Lockheed
                        Martin Energy Research  Corporation,  manager of the Oak
                        Ridge National  Laboratory,  a U.S. Department of Energy
                        national laboratory, for which the Company paid Lockheed
                        Martin a $50  licensing  fee  during the year ended June
                        30, 1997.  Under this  agreement,  Lockheed Martin is to
                        receive  a royalty  of 2% of net sales of the  Company's
                        products or processes  covered under the agreement (less
                        allowances for returns, discounts, commissions, freight,
                        and  excise  or other  taxes)  up to total  net sales of
                        $4,000 and 1% of net sales thereafter.  In addition, the
                        Company  has  agreed  to  guarantee   Lockheed   Martin,
                        commencing in the third year of the agreement, an annual
                        minimum  royalty of $15. As of December 31, 2003, $30 of
                        royalties  have  been  accrued  under  the  terms of the
                        agreement.

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

<PAGE>

                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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


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

                        The   Convertible   Preferred   Stock,   Series   A,  is
                        convertible  into  Common  Stock  at any  time  prior to
                        redemption at a conversion rate of 1.67 shares of Common
                        Stock for each share of Convertible  Preferred Stock (an
                        effective  conversion price of $6.00 per share of Common
                        Stock),    subject   to    adjustment    under   certain
                        circumstances,  including  the failure of the Company to
                        pay a  dividend  on  the  Convertible  Preferred  Stock,
                        Series A,  within 30 days of a  dividend  payment  date,
                        which will result each  instance in a reduction  of $.50
                        per share in the  conversion  price but not below  $3.75
                        per share.  Since June of 1998 the  Company has not paid
                        dividends,  and  therefore  has adjusted  the  effective
                        conversion   price   from  $6.00  to  $3.75  per  share.
                        Accumulated  and unpaid  dividends  at December 31, 2003
                        amounted to $3,049,  an amount equal to $5.88 per share.
                        Dividends   will  not  be   declared   until  there  are
                        sufficient accumulated earnings.

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


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

<PAGE>

                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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


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

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

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

                        The  Convertible  Preferred  Stock,  Series B, has a par
                        value of $.001 per share and a stated  value of $100 per
                        share.  Cumulative  dividends are payable at the rate of
                        $6 per share per annum,  payable  quarterly  in arrears,
                        commencing  June 30, 1999,  when, and if declared by the
                        Board of Directors, before any dividends are declared or
                        paid on the Common  Stock or any capital  stock  ranking
                        junior to the Convertible Preferred Stock, Series B. The
                        Company  has not paid  any  dividends  on these  shares.
                        Accumulated  and unpaid  dividends  at December 31, 2003
                        amounted  to  approximately  $100,  an  amount  equal to
                        $28.01 per share.


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

<PAGE>

                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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


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

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

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

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

                        Warrants
                        Each Warrant entitled the holder thereof to purchase, at
                        any time from April 3, 1998 through  April 3, 2002,  one
                        share of  Common  Stock at a price of $5.50  per  share,
                        subject to adjustment.  Commencing  October 3, 1998, the
                        Warrants were subject to  redemption by the Company,  in
                        whole but not in part,  at $.10 per  Warrant  on 30 days
                        prior written notice  provided that the average  closing
                        sale price of the Common Stock equals or exceeds $15 per
                        share,  subject to  adjustment,  for any 20 trading days
                        within a period of 30 consecutive trading days ending on
                        the fifth trading day prior to the date of the notice of
                        redemption.  As of December  31, 2003 all  warrants  had
                        expired without any being exercised or redeemed.

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

<PAGE>

                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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


7.   Capital            Representative's Warrants
     Structure          In  connection  with the Initial  Public  Offering,  the
     Continued          Company sold to the  Underwriter for $.0001 per warrant,
                        warrants  to  purchase  from the  Company  up to  60,000
                        shares of Convertible Preferred Stock, 150,000 shares of
                        Common    Stock    and/or    210,000    Warrants    (the
                        "Representative's   Warrants").   The   Representative's
                        Warrants were exercisable at a price of $12 per share of
                        Convertible  Preferred  Stock,  $6 per  share of  Common
                        Stock and $.12 per  Warrant  from April 3, 1998  through
                        April 3, 2002, and were restricted from sale,  transfer,
                        assignment or hypothecation  prior to that date,  except
                        to officers  of the  Underwriter.  The  Representative's
                        Warrants  provided  for  adjustment  in  the  number  of
                        securities  issuable  upon  the  exercise  thereof  as a
                        result of certain  subdivisions  and combinations of the
                        Common Stock. The  Representative's  Warrants granted to
                        the holders thereof  certain rights of registration  for
                        the  securities  issuable upon exercise  thereof.  As of
                        December  31,  2003 all  Representative's  Warrants  had
                        expired without any being exercised.

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

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

<PAGE>

                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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


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

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

 Outstanding at year ended December 31, 2002               823,750  $     0.24
      Granted                                                    -
      Exercised                                                  -
      Forfeited                                                  -
      Rescinded                                                  -
                                                     --------------------------

 Outstanding at year ended December 31, 2003               823,750  $     0.24
                                                     --------------------------

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

<PAGE>

                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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


8.   Non-Qualified      Options exercisable and available for future grant as of
     Stock Option       December 31, 2003 are as follows:
     Plan
     Continued          Options exercisable                            823,750

                        Options available for grant                  1,176,250

9.   Stock Based        The Company has adopted the  disclosure-only  provisions
     Compensation       of Statement of Financial  Accounting  Standards  (SFAS)
                        No.  123,   Accounting  for  Stock-Based   Compensation.
                        Accordingly, no compensation cost has been recognized in
                        the  financial  statements.   SFAS  123  requires  stock
                        options  to be  valued  using  an  approach  such as the
                        Black-Scholes  option pricing model.  The  Black-Scholes
                        model  calculates the fair value of the grant based upon
                        certain  assumptions  about  the  underlying  stock.  No
                        options  were  granted  in 2003 or 2002,  and  therefore
                        there is no pro forma  effect on net  earnings per share
                        for the years ended December 31, 2003 and 2002.

                        The following table summarizes  information  about stock
                        options outstanding at December 31, 2003:

                Options Outstanding                   Options Exercisable
 ----------------------------------------------------------------------------
                               Weighted
                              Average    Weighted                 Weighted
   Range of      Number      Remaining   Average                  Average
   Exercise    Outstanding  Contractual  Exercise      Number     Exercise
    Prices     at 12/31/03  Life (Years)   Price     Exercisable    Price
 ----------------------------------------------------------------------------

 $     5.00        25,000         4.96    $    5.00        25,000 $     5.00
 $      .09       798,750         4.96    $     .09       798,750 $      .09
 ----------------------------------------------------------------------------

 $ .09-5.00       823,750         4.96    $     .24       823,750 $      .24
 ----------------------------------------------------------------------------


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

<PAGE>

                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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


10.  Commitments        Claim
     and                The Company has a matter of possible  litigation arising
     Contingencies      out of the Port of Baltimore  contract.  It is not known
                        what  amount if any that the  Company may be required to
                        pay. The December 31, 2003 financial  statements reflect
                        $53 as a liability  related to the  contract.  It is not
                        known if any additional amounts will be incurred.

11.  Recent             In November  2002, the EITF reached a consensus on Issue
     Accounting         No.   00-21,    Revenue   Arrangements   with   Multiple
     Pronounce-         Deliverables.  EITF Issue No. 00-21 provides guidance on
     ments              how to account for certain arrangements that involve the
                        delivery or performance of multiple  products,  services
                        and/or  rights to use  assets.  The  provisions  of EITF
                        Issue  No.  00-21  will  apply to  revenue  arrangements
                        entered into in fiscal periods  beginning after June 15,
                        2003.  The adoption of EITF Issue No. 00-21 did not have
                        a material  impact on  operating  results  or  financial
                        condition of the Company.

                        In April 2003,  FASB issued SFAS No. 149,  Amendment  of
                        Statement  133 on  Derivative  Instruments  and  Hedging
                        Activities. SFAS 149 amends and clarifies accounting for
                        derivative  instruments,  including  certain  derivative
                        instruments  embedded in other contracts and for hedging
                        activities  under SFAS 133,  Accounting for  Derivatives
                        and Hedging Activities.  SFAS 149 is generally effective
                        for   derivative   instruments,   including   derivative
                        instruments embedded in certain contracts,  entered into
                        or modified  after June 30,  2003.  The adoption of SFAS
                        149 did not  have a  material  impact  on the  operating
                        results or financial condition of the Company.


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

<PAGE>

                                         COMMODORE SEPARATION TECHNOLOGIES, INC.
                                                   (A Development Stage Company)
                                                   Notes to Financial Statements
                                                                       Continued

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


11.  Recent             In May 2003,  the FASB issued SFAS 150,  Accounting  for
     Accounting         Certain Financial  Instruments with  Characteristics  of
     Pronounce-         Both  Liabilities  and Equity.  SFAS 150  clarifies  the
     ments              accounting  for  certain   financial   instruments  with
     Continued          characteristics  of  both  liabilities  and  equity  and
                        requires  that  those   instruments   be  classified  as
                        liabilities   in  statements   of  financial   position.
                        Previously,  many of those  financial  instruments  were
                        classified   as  equity.   SFAS  150  is  effective  for
                        financial instruments entered into or modified after May
                        31, 2003 and  otherwise is effective at the beginning of
                        the first interim period  beginning after June 15, 2003.
                        On  November  7,  2003,  FASB Staff  Position  150-3 was
                        issued,  which indefinitely  deferred the effective date
                        of   SFAS   150   for   certain   mandatory   redeemable
                        non-controlling  interests. As the Company does not have
                        any of these financial instruments, the adoption of SFAS
                        150  did  not  have   any   impact   on  the   Company's
                        consolidated financial statements.

                        In December 2003, the FASB issued Interpretation No. 46R
                        ("FIN 46R") (revised  December 2003),  Consolidation  of
                        Variable   Interest   Entities,   an  Interpretation  of
                        Accounting  Research  Bulletin No. 51 ("ARB 51"),  which
                        addresses  how a  business  enterprise  should  evaluate
                        whether  it  has a  controlling  interest  in an  entity
                        through means other than voting  rights and  accordingly
                        should  consolidate  the entity.  FIN 46R replaces  FASB
                        Interpretation  No.  46 (FIN 46),  which  was  issued in
                        January 2003.  Before  concluding that it is appropriate
                        to apply ARB 51 voting interest  consolidation  model to
                        an entity,  an enterprise  must first determine that the
                        entity is not a variable  interest  entity (VIE).  As of
                        the  effective  date  of FIN  46R,  an  enterprise  must
                        evaluate  its  involvement  with all  entities  or legal
                        structures created before February 1, 2003, to determine
                        whether  consolidation  requirements of FIN 46R apply to
                        those entities.  There is no  grandfathering of existing
                        entities.  Public  companies must apply either FIN 46 or
                        FIN 46R  immediately  to entities  created after January
                        31,  2003  and no  later  than  the  end  of  the  first
                        reporting  period  that ends after March 15,  2004.  The
                        adoption  of  FIN  46 had  no  effect  on the  Company's
                        consolidated  financial position,  results of operations
                        or cash flows.


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